An investor is considering a short-term investment in a resort property on a Caribbean island. If the weather is reasonably stable over the next year, the value of the investment is expected to be $1.2 million; however, if this proves to be a heavy hurricane year, the value is expected to be $0.5 million. According to the experts, there is a 40% chance that this will be a year of many hurricanes.
-Refer to the information above. What is the expected future value of this investment?
A)$920,000
B)$780,000
C)$850,000
D)none of the above

Question

Quizplus · Accepted Answer

Expected value = (0.6 x 1.2 million) + (0.4 x 0.5 million) = $920,000

An Investor Is Considering a Short-Term Investment in a Resort