Suppose Reggie 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?

Question

Quizplus · Accepted Answer

If Reggie has a 25 percent chance of not collecting $1,000 in one year, then he has a 75 percent chance of collecting it. The expected value of the future payment is therefore:
0.75($1,000 × (1 + 0.10)) + 0.25($0) = $682.50
Since the answer choices are rounded, the closest answer is B, $682.

Suppose Reggie Has a 25 Percent Chance of Not Collecting