A contractor must pay a $40,000 penalty if construction of an expense home requires more than 16 weeks. He will receive a bonus of $10,000 if the home is completed within 8 weeks. Based on experience with this type of project, the contractor feels there is a 0.2 chance the home will require more than 16 weeks for completion, and there is a 0.3 chance it will be finished within 8 weeks. If the price of the home is $350,000 before any penalty or bonus adjustment, how much can the buyer expect to pay for her new home when it is completed?

Question

A contractor must pay a $40,000 penalty if construction of an expense home requires more than 16 weeks.  He will receive a bonus of $10,000 if the home is completed within 8 weeks.  Based on experience with this type of project, the contractor feels there is a 0.2 chance the home will require more than 16 weeks for completion, and there is a 0.3 chance it will be finished within 8 weeks.  If the price of the home is $350,000 before any penalty or bonus adjustment, how much can the buyer expect to pay for her new home when it is completed?

PsyDAG · Answer

Buyer has 50% chance of paying $350,000, 20% chance of paying %310,000 and 30% chance of paying $360,000.

That is all the information I can give you from the data provided.

I hope it helps. Thanks for asking.

PsyDAG · Answer

By the way, you School Subject should be Math or Statistics rather than college.