John Is Trying to Decide Whether to Expand His Business

question 49

Multiple Choice

John is trying to decide whether to expand his business or not.If he continues his business as it is,with no expansion,there is a 50 percent chance he will earn $100,000 and a 50 percent chance he will earn $300,000.If he does expand,there is a 30 percent chance he will earn $100,000,a 30 percent chance he will earn $300,000 and a 40 percent chance he will earn $500,000.It will cost him $150,000 to expand.The expected value of John's earnings if he chooses not to expand is:

• A) $400,000.
• B) $200,000.
• C) $250,000.
• D) $225,000.

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Definitions:

Insurance Premiums

The amount of money that individuals or businesses pay for an insurance policy to remain active.

Deductible

An amount that must be paid out of pocket by the policyholder before an insurance company will cover a claim.

Medical Bills

The invoices and financial charges generated for services rendered by health care providers, hospitals, and clinics.

Insurance Premiums

The amount paid periodically to an insurance company by the insured for coverage under an insurance policy.