Hugh buys $8000 worth of stock in an electronics company which he hopes to sell afterward at a profit.The company is developing a new laptop computer and a new desktop computer.If it releases both computers before its competitor,the value of Hugh's stock will jump to $22,000.If it releases one of the computers before its competitor,the value of Hugh's stock will jump to $16,000.If it fails to release either computer before its competitor,Hugh's stock will be worth only $5000.Hugh believes that there is a 70% chance that the company will release the laptop before its competitor and a 60% chance that the company will release the desktop before its competitor.Find Hugh's expected profit.Assume that the development of the laptop and the development of the desktop are independent events.
A)$9200
B)$17,200
C)$12,200
D)$15,920
E)$11,300.00

Question

Quizplus · Accepted Answer

The expected profit is:(0.7 * 0.6 * (22000 - 8000)) + (0.7 * 0.4 * (16000 - 8000)) + (0.3 * 0.6 * (16000 - 8000)) + (0.3 * 0.4 * (5000 - 8000))= (0.42 * 14000) + (0.28 * 8000) + (0.18 * 8000) + (-0.12 * 3000)= 5880 + 2240 + 1440 - 360= 9200

Hugh Buys $8000 Worth of Stock in an Electronics Company