Suppose Regis has a 25 percent chance of not collecting $1,000 in one year.If the interest rate is 10 percent, what is the expected value of the future payment?
A) $750.
B) $682.
C) $227.
D) $909.

Question

Quizplus · Accepted Answer

The expected value is calculated by multiplying the probability of each outcome by its value and summing the results. The expected payment is 75% of $1,000, which is $750. Discounting this at 10% gives $750 / 1.10 = $682.

Suppose Regis Has a 25 Percent Chance of Not Collecting