3. A company knows from past experience that if they price their product at $16

Question

3. A company knows from past experience that if they price their product at $16 the distribution of demand is as follows: 16% of the time demand is 144 , 23% of the time demand is 277, 33% of the time demand is 371, and demand is 463 the rest of the time. If the company makes 463 units, what is the expected profit if each unit the company produces costs the company $8.50? (please express your answer using 2 decimal places)

4. A stock analyst assigns the following probability distribution to the possible earnings per share (eps) of a company: he believes there is a probability of 0.28 that eps will be 1.02, a probability of 0.33 that eps will be 1.33, and otherwise eps will be 1.58. What is the expected value of the eps? (please express your answer using 2 decimal places)

Explanation / Answer

3. Demand = 0.16*144+0.23*277+0.33*371+0.28*463 = 338.82

Expected Revenue = 16*338.82 = $5421.12

Costs = 463*8.50 = $3935.5

Expected profit = $5421.12- $3935.5 = $1485.62

4.

Expected eps = 0.28*1.02+0.33+1.33+0.39*1.58 = 1.3407

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