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 $50 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 $50 comma 000. you contact an economist who believes there is a 30 % probability the economy will remain strong, a 60 % probability the economy will grow at a moderate pace, and a 10 % probability the economy will slip into recession. what is the expected profit from this investment?

Answer: $ 16,000 profit

Step-by-step explanation:

Given the following:

Profit when economy is strong = 50,000

Profit when economy is moderate = 10,000

Loss when economy goes into recession = 50000

Resulting probabilities of the three probable occurrences are:

Probability of strong economy; p (strong) = 30/100 = 0.3

Probability of moderate; P (moderate) = 60/100 = 0.6

Probability of recession; P (recession) = 10/100 = 0.1

Expected profit:

Summation of the product of each probability and its accompanying profit or loss.

P (strong) * profit of strong = 0.3 * 50000 = 15000

P (moderate) * profit of moderate = 0.6 * 10000 = 6000

P (recession) * loss on recession = 0.1 * 50000 = 5000 = - 5000 (loss)

Expected profit:

$ (15,000 + 6000 - 5000) = $16,000 profit