A certain company pays dividends based on the overall state of the economy. You think that...
A certain company pays dividends based on the overall state of the economy. You think that the economy has three possible states: boom, level, and slump. If the economy is booming, you will receive a $10 dividend. A normal economy will result in a $5 dividend, and a slumping economy will only pay a $2 dividend.
Assuming that each state of the economy has a one in three chance of occurring, what is the expected value of your dividend?
Homework Answers
| state of economy | probability | dividend | probability * dividend |
| boom | 1/3 | 10 | 1/3*10 =>3.3333 |
| normal | 1/3 | 5 | 1/3*5=>1.6667 |
| slump | 1/3 | 2 | 1/3*2=.0.6667 |
| expected dividend | $5.67 |
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