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 ​$50 comma 000. If the economy grows at a moderate​ pace, the investment will result in a profit of ​$20 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 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

Answer:

The expected profit from this​ investment is $12000

Explanation:

The expected profit is that profit which is to be imagine in the future. With the help of probability, it is easy to compute the expected profit.

The formula to compute the expected profit is shown below:

= Strong Profit × Strong Probability + Moderate profit × moderate Probability - Recession Loss × recession probability

= $50,000 × 20% + $20,000 × 60% - $50,000 × 20%

= $10,000 + $12,000 - $10,000

= $12000

Thus, the expected profit from this​ investment is $12000.

Answer 2

Profit when economy is strong = $ 50,000

Profit when economy is at moderate pace = $ 20,000

Loss when economy is at reccession = $ 50,000

P (economy remain strong) = 20/100 = 0.2

P (economy at moderate pace) = 0.6

P (economy at reccession) = 0.2

Expected profit = Total x P (2)

= (0.2 × 50,000) + (0.6 × 20,000) - (0.2 × 50,000)

= 10,000.0 + 12,000.0 - 10,000.0

= $ 12,000

••• Expected profit = $ 12,000

Further Explanation

New profits arise in economic activities using the financial system. Profit is not obtained by chance, but thanks to the special efforts of people who use money.

Because of the relationship with money transactions, profitability specifically takes place in the context of capitalism.

Declining this view, capitalists include 3 main elements: private property institutions, the practice of profit-seeking, and competition in a free-market economic system.

Relative Advantage

• Profit is a benchmark to assess the health of a company or the efficiency of a company,
• Profit is a sign that the product or service is valued by the public,
• Profits are a whip to increase effort,
• Profit is a condition of the company's survival,
• Benefits offset the risks in the business.

Learn More

Company profits brainly.com/question/12313379

Relative Advantages brainly.com/question/12960422

Details

Class: College

Subject: Business

Keyword: probability, Opportunity, theory