Question

An investment counselor calls with a hot stock tip. He believes that if the economy remains​ strong, the investment will result in a profit of ​$40 comma 000. If the economy grows at a moderate​ pace, the investment will result in a profit of ​$10 comma 000. ​However, if the economy goes into​ recession, the investment will result in a loss of ​$40 comma 000. You contact an economist who believes there is a 20​% probability the economy will remain​ strong, a 60​% probability the economy will grow at a moderate​ pace, and a 20​% probability the economy will slip into recession. What is the expected profit from this​ investment?

Answer 1

The expected profit from the investment is $6,000

Step-by-step explanation:

In this question, we are asked to calculate the expected profit from the investment.

To calculate this, we approach the question mathematically. This is done by multiplying the individual events with their probabilities and adding the answers together.

= (40,000)(20%) + (10000)(60%) + (-40,000)(20%)

=8,000 + 6,000 - 8,000

= $ 6000