Find the Expected Value of an Action

question 6

Multiple Choice

Find the expected value of an action.
-A land owner is considering a community development project in the southeastern
u.S. He is faced with two alternatives: (1) build detached homes in a planned retirement
Community or (2) build a smaller townhouse / condominium complex. Mortgage interest
Rates will affect his outcomes and the payoff (in $ millions) table is shown below. If the
Probabilities for future mortgage interest rates going up, staying about the same, and
Going down are .35, .50 and .15, respectively, what is the expected value for building an
Active retirement community?

• A) $2.5 million
• B) $3.625 million
• C) $2.75 million
• D) $875,000
• E) None of the above

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Definitions:

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Wound VAC System

The Wound VAC (Vacuum-Assisted Closure) System is a medical device that promotes wound healing by applying negative pressure to draw the edges of a wound together.