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 quit her job that pays $60,000 where 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) $100,000
B) $50,000
C) $60,000
D) $110,000

Question

Quizplus · Accepted Answer

Katy's expected wealth is calculated by considering the probability of receiving the inheritance. There's a 50% chance of receiving $100,000 and a 50% chance of receiving $0. Thus, the expected inheritance is 0.5 * $100,000 + 0.5 * $0 = $50,000. Since she quits her $60,000 job, her expected wealth is $50,000.

Katy Has an Ailing and Wealthy, but Miserly, Parent