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Dear Sir,
Thank you for you reply on my other question . I am stuck at q55 in Kaplan kit part (d)
probability recession slow growth rapid growth
Total values
KYT 42 55 75
Tulen 63 80 120Kyt has 45 debt and tulen has 10 debt.
answer showsexpected value I dont understand how this expected value is found in merger .
Are you clear as to how they have found the total values for each economic state? (e.g recession = 42 + 63 = 105)
If you are, then the expected value is found by multiplying each total by the probability and then adding up.
So…..(105 x 0.15) + (135 x 0.65) + (195 x 0.20) = 142.5
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