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 33 percent chance the recession will end in six months and profits will return to $100 million.However,there is a 67 percent chance the recession will not end in six months,resulting in a $7 million loss.The expected profits over the next six months are:

Question

Quizplus · Accepted Answer

The expected profit is calculated as the sum of the probabilities of each outcome multiplied by the corresponding profit. In this case, the expected profit is:(0.33 * $100 million) + (0.67 * -$7 million) = $28.31 million

A Manager Is Attempting to Assess the Probability of a Recession