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 $60,000. If the economy grows at a moderate pace, the investment will result in a profit of $10.000. However, if the economy goes into recession, the investment will result in a loss of $60,000. 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? The expected profit is $1. (Type an integer or a decimal.)
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 $60,000. If the economy grows at a moderate pace, the investment will result in a profit of $10.000. However, if the economy goes into recession, the investment will result in a loss of $60,000. 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? The expected profit is $1. (Type an integer or a decimal.)
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
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![**Investment Decision Analysis**
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 $60,000. If the economy grows at a moderate pace, the investment will result in a profit of $10,000. However, if the economy goes into recession, the investment will result in a loss of $60,000.
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?**
The expected profit is $[ ].
*(Type an integer or a decimal.)*
**Explanation**
To calculate the expected profit, use the formula:
\[ \text{Expected Profit} = (P_{\text{strong}} \times \text{Profit}_{\text{strong}}) + (P_{\text{moderate}} \times \text{Profit}_{\text{moderate}}) + (P_{\text{recession}} \times \text{Loss}_{\text{recession}}) \]
Where:
- \(P_{\text{strong}} = 0.20\), \( \text{Profit}_{\text{strong}} = 60,000 \)
- \(P_{\text{moderate}} = 0.60\), \( \text{Profit}_{\text{moderate}} = 10,000 \)
- \(P_{\text{recession}} = 0.20\), \( \text{Loss}_{\text{recession}} = -60,000 \)
Substitute the values to find the expected profit.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F993846b8-fce5-49b6-a303-b359ec060b0f%2F38ef4c1f-a185-433a-bc96-886260f6deda%2F2bq55lo_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Investment Decision Analysis**
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 $60,000. If the economy grows at a moderate pace, the investment will result in a profit of $10,000. However, if the economy goes into recession, the investment will result in a loss of $60,000.
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?**
The expected profit is $[ ].
*(Type an integer or a decimal.)*
**Explanation**
To calculate the expected profit, use the formula:
\[ \text{Expected Profit} = (P_{\text{strong}} \times \text{Profit}_{\text{strong}}) + (P_{\text{moderate}} \times \text{Profit}_{\text{moderate}}) + (P_{\text{recession}} \times \text{Loss}_{\text{recession}}) \]
Where:
- \(P_{\text{strong}} = 0.20\), \( \text{Profit}_{\text{strong}} = 60,000 \)
- \(P_{\text{moderate}} = 0.60\), \( \text{Profit}_{\text{moderate}} = 10,000 \)
- \(P_{\text{recession}} = 0.20\), \( \text{Loss}_{\text{recession}} = -60,000 \)
Substitute the values to find the expected profit.
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