Question
An investor calls with a stock tip. He believes that if the economy remains strong, the investment will result in a profit of 40,000. If
An investor calls with a stock tip. He believes that if the economy remains strong, the investment will result in a profit of 40,000. If the economy grows at a moderate pace, the investment will result in a profit of 10,000. However, if the economy goes into recession, the investment will result in a loss of 40,000. You contact an economist who believes there is a 30% probability the economy will remain strong, a 60% probability the economy will grow at a moderate pace, and a 10% probability the economy will slip into recession. What is the expected profit from this investment?
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