Question 285308: shawn and maddie purchase a foreclosed property for $50,000 and spend an additional $27,000 fixing up the property. They feel they can sell the property for $120,000 with probabilty 15%, $100,000 with probability 45%, $80,000 with probability 25% and $60,000 with probability 15%. Compute and interpret the expected profit for reselling the property
Answer by stanbon(75887)   (Show Source):
You can put this solution on YOUR website! shawn and maddie purchase a foreclosed property for $50,000 and spend an additional $27,000 fixing up the property.
They feel they can sell the property for
$120,000 with probabilty 15%, profit = 43000
$100,000 with probability 45%; profit = 23000
$80,000 with probability 25%; profit = 3000
$60,000 with probability 15%; profit = -17000
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Compute and interpret the expected profit for reselling the property:
E(profit) = 0.15*43000 + 0.45*23000 + 0.25*3000 - 0.15*17000
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E(profit) = $15000
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Cheers,
Stan H.
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