Question

Clive is a sales representative up against crunch time at the end of the year. He needs a purchase order from a large customer to be entered before the end of business today in order to qualify for his $15,000 annual performance bonus. There is a 65 percent probability of that the customer does not enter the order on time, which would result in Clive receiving nothing. What is the expected value of Clive's annual performance bonus

Answer 1

Answer:

$5,250

Explanation:

The expected value of Clive's annual performance bonus is determined by the probability that the customer enters the order on time multiplied by the bonus amount:

$EV = (1-0.65)*\ 15,000\\EV = \ 5,250$

Since he gets nothing if the order is not entered on time, this outcome does not have to be included.

The expected value of Clive's annual performance bonus is $5,250.