Under normal conditions (70% probability), plan a will produce $20,000 higher return than plan b. under tight money conditions (30% probability), plan a will produce $100,000 less than plan b. what is the expected value of returns?
a. ($16,000)
b. ($2,000)
c. $28,000
d. $58,000

A. ($16,000)

Explanation:

The computation of the expected value of return equal to

=  (Higher return × probability rate) - (Less return -  probability rate)

= ($20,000 × 70%) - ($100,000 × 30%)

= $14,000 - $30,000

= - $16,000

For computing the correct value we have to deduct the tighter money conditions from the normal conditions.

Taxes. Taxes are seldom neutral. Most tax systems produce winners and losers because governments frequently use their tax policies to encourage—or discourage—certain types of behavior. If a government wants to reward investment, for example, it might cut taxes on capital gains (income earned from selling investments).

Explanation: