If the present discounted value of a payment is $1,000,000 and there is a 40 percent chance that the payment will not occur,then the expected value is
A)$600,000.
B)$400,000.
C)$1,000,000.
D)$1,400,000.

Question

Quizplus · Accepted Answer

The expected value is calculated by multiplying the value of the payment by the probability of it occurring. Since there's a 40% chance the payment will not occur, there's a 60% chance it will. Therefore, the expected value is $1,000,000 * 0.60 = $600,000.

If the Present Discounted Value of a Payment Is $1,000,000