A U.S. firm holds an asset in Israel and faces the following scenario:
$\begin{array} { l l l l }
\hline & \text { State 1 } & \text { State 2 } & \text { State 3 } \
\hline \text { Probability } & 25 \% & 50 ^ { \circ } \text { o } & 25 \% \
\text { Spot rate } & \$ 0.30 \text { ILS } & \text { \$0.20 ILS } & \$ 0.15 / \text { ILS } \
\text { P* } & \text { ILS2,000 } & \text { ILS5,000 } & \text { ILS3,000 } \
\text { P } & \$ 3,000 & \text { \$2.500 } & \text { \$750 }
\end{array}$
where,
P* = Israeli new shekel (ILS) price of the asset held by the U.S. firm
P = dollar price of the same asset

-The expected value of the investment in U.S.dollars is: (Do not round intermediate calculations):

Question

A U.S. firm holds an asset in Israel and faces the following scenario:
$\begin{array} { l l l l } 
\hline & \text { State 1 } & \text { State 2 } & \text { State 3 } \
\hline \text { Probability } & 25 \% & 50 ^ { \circ } \text { o } & 25 \% \
\text { Spot rate } & \$ 0.30 \text { ILS } & \text { \$0.20 ILS } & \$ 0.15 / \text { ILS } \
\text { P* } & \text { ILS2,000 } & \text { ILS5,000 } & \text { ILS3,000 } \
\text { P } & \$ 3,000 & \text { \$2.500 } & \text { \$750 }
\end{array}$
where,
P* = Israeli new shekel (ILS) price of the asset held by the U.S. firm
P = dollar price of the same asset

-The expected value of the investment in U.S.dollars is: (Do not round intermediate calculations):

Quizplus · Accepted Answer

The expected value of the investment in U.S. dollars is calculated by taking the sum of the products of each state's probability and its corresponding dollar price (P). The calculation is as follows:$$ \text{Expected Value} = (0.25 \times \$3,000) + (0.50 \times \$2,500) + (0.25 \times \$750) $$$$ \text{Expected Value} = \$750 + \$1,250 + \$187.50 $$$$ \text{Expected Value} = \$2,187.50 $$Therefore, the correct answer is $2,187.50.

A US Firm Holds an Asset in Israel and Faces the the Following