An Investor Is Considering a Short-Term Investment in a Resort

question 59

Multiple Choice

An investor is considering a short-term investment in a resort property on a Caribbean island. If the weather is reasonably stable over the next year, the value of the investment is expected to be $1.2 million; however, if this proves to be a heavy hurricane year, the value is expected to be $0.5 million. According to the experts, there is a 40% chance that this will be a year of many hurricanes.
-Refer to the information above. What is the expected future value of this investment?

• A)$920,000
• B)$780,000
• C)$850,000
• D)none of the above

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Definitions:

Producer

An entity or individual that is responsible for the creation or provision of goods or services in an economy.

Sampling Distribution

A probability distribution consisting of all possible values of a sample statistic.

Single Population

Refers to a group or set of similar items or individuals from which statistical data are gathered for analysis.

Chi-square Distribution

A probability distribution used in statistical significance tests, which is built on the sum of squared standard normal deviates.