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A certain company pays dividends based on the overall state of the economy. You think that the economy has three possible states: boom, level, and
A certain company pays dividends based on the overall state of the economy. You think that the economy has three possible states: boom, level, and slump. If the economy is booming, you will receive a $10 dividend. A normal economy will result in a $5 dividend, and a slumping economy will only pay a $2 dividend.
Assuming that each state of the economy has a one in three chance of occurring, what is the expected value of your dividend?
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