A bank money manager estimates that the bank will experience a liquidity deficit of $400 million with a probability of 10 percent,a liquidity deficit of $900 million with a probability of 20 percent,a liquidity surplus of $600 million with a probability of 30 percent,and a liquidity surplus of $1,200 with a probability of 40 percent over the next month.What is this bank's expected liquidity deficit or surplus next month?

Question

Quizplus · Accepted Answer

Expected liquidity = (Probability of liquidity deficit * Amount of liquidity deficit) + (Probability of liquidity surplus * Amount of liquidity surplus)
Expected liquidity = (0.1 * -400) + (0.2 * -900) + (0.3 * 600) + (0.4 * 1200)
Expected liquidity = -40 - 180 + 180 + 480
Expected liquidity = 440
Therefore, the bank's expected liquidity next month is a surplus of $440 million, which is option C.

A Bank Money Manager Estimates That the Bank Will Experience