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. If this investment is purchased for its fair market value, what is the expected return if the weather is stable? Round your answer to the nearest tenth of a
Percent.
A)41.2%
B)30.4%
C)62.4%
D)none of the above.

Question

Quizplus · Accepted Answer

The expected return calculation provided does not directly relate to the scenario of stable weather only; it mixes probabilities of different weather outcomes, which isn't asked for in the question about the return if the weather is stable.

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