Suppose the prospects for recovering principal for a defaulted bond issue depend on which of two economics scenarios prevails.Scenario 1 has probability of 0.75 and will result in recovery of $0.90 per $1 of principal value with probability 0.45, or in recovery of $0.80 per $1 of principal value with probability 0.55.Scenario 2 has probability 0.25 and will result in recovery of $0.50 per $1 principal value with probability 0.85, or in recovery of $0.40 per $1 of principal value with probability 0.15.

a.Compute the probability of each of the four possible recovery amounts:$0.90, $0.80, $0.50, and $0.40.

b.Compute the expected recovery, given the first scenario.

c.Compute the expected recovery, given the second scenario.

d.Compute the expected recovery.

e.Graph the information in a tree diagram.