Under normal conditions (70% probability), Plan A will produce $20,000 higher return than Plan B. Under tight money conditions (30% probability), Plan A will produce $100,000 less than Plan B. What is the expected value of returns?

A. ($16,000)

B. ($2,000)

C. $28,000

D. $58,000

Question

Santino Patel

Business

11 January, 08:26

Under normal conditions (70% probability), Plan A will produce $20,000 higher return than Plan B. Under tight money conditions (30% probability), Plan A will produce $100,000 less than Plan B. What is the expected value of returns?

A. ($16,000)

B. ($2,000)

C. $28,000

D. $58,000

+4

Answers (1)

Know the Answer?

Nathan Herrera · Answer 1

A. ($16,000)

Explanation:

The computation of the expected value of return equal to

= (Higher return * probability rate) - (Less return - probability rate)

= ($20,000 * 70%) - ($100,000 * 30%)

= $14,000 - $30,000

= - $16,000

For computing the correct value we have to deduct the tighter money conditions from the normal conditions.

Under normal conditions (70% probability), Plan A will produce $20,000 higher return than Plan B. Under tight money conditions (30% probability), Plan A will produce $100,000 less than Plan B. What is the expected value of returns?A. ($16,000)B. ($2,000)C. $28,000D. $58,000

Under normal conditions (70% probability), Plan A will produce $20,000 higher return than Plan B. Under tight money conditions (30% probability), Plan A will produce $100,000 less than Plan B. What is the expected value of returns?

A. ($16,000)

B. ($2,000)

C. $28,000

D. $58,000