Please show work because I can\'t find this in the stupid book! Under normal con

Question

Please show work because I can't find this in the stupid book!

Under normal conditions (75% probability), Financing Plan A will produce $25,000 higher return than Plan B. Under tight money conditions (25% probability), Plan A will produce $33,000 less than Plan B. What is the expected value of returns?

Under normal conditions (60% probability), Plan A will produce $38,000 higher return than Plan B. Under tight money conditions (40% probability), Plan A will produce $116,000 less than Plan B. What is the expected value of returns?

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

Expected Value = .75*25000 - .25*33000 = $10500

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Part B:

Expected Value = .60*38000 - .40*116000 = -23600

Thanks.

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