Katy has an ailing and wealthy, but miserly, parent. The parent has told Katy that if she takes care of him until he dies, then she will get $100,000 in inheritance. Katy knows that there is only a 50-50 chance that her father will leave her the full amount or nothing. To take care of her father, she has to take a job that pays $30,000 where her current job pays her $70,000 per year. If her father is expected to pass away in 1 year, what is Katy's expected wealth if she takes care of her father?
A) $130,000
B) $90,000
C) $80,000
D) $70,000

Question

Quizplus · Accepted Answer

Katy's expected wealth is calculated by considering the probability of receiving the inheritance and her reduced salary. The expected inheritance is 0.5 * $100,000 = $50,000. Her salary for taking care of her father is $30,000. Therefore, her expected wealth is $50,000 + $30,000 = $80,000.

Katy Has an Ailing and Wealthy, but Miserly, Parent