A manager is attempting to assess the probability of a recession ending in the next six months and its impact on expected profitability.The manager believes there is a 75 percent chance the recession will end in six months and profits will return to $400 million.However,there is a 25 percent chance the recession will not end in six months,resulting in a $5 million loss.The expected profits over the next six months are:

Question

Quizplus · Accepted Answer

Expected profits = (0.75 * $400 million) + (0.25 * -$5 million) = $298.75 million

A Manager Is Attempting to Assess the Probability of a Recession