Question

question 4 please.

i dont know what they mean by construct a matrix so please help.

4. King, Inc. a successful Midwest firm, is considering opening a branch office on the West Coast. Under normal economic conditions, with a 45% probability of occurring. King can expect to earn a net income of $70,000 per year. In a mini-recession, at 25% probability, King will earn $20,000. In a severe recession, at a 20% probability, King will lose $15,000. There is also a slight probability (10%) that King will lose $300,000 if the expansion fails and the branch office must be closed. Should King open a branch office in California based on these assumptions? Construct a matrix to derive the Expected Level of Income using the different economic scenarios and probabilities:

Answer 1

economic situation	probability	expected income or loss	probability*expected income or loss
normal economic conditions	45%	70000	31500
mini recession	20%	20000	4000
severe recession	20%	-15000	-3000
if office is closed	10%	-300000	-30000
expected level of income = sum of probability*expected income or loss			2500