A bank money manager estimates that the bank will experience a liquidity deficit of $400 million with a probability of 10 percent, a liquidity deficit of $900 million with a probability of 20 percent, a liquidity surplus of $600 million with a probability of 30 percent, and a liquidity surplus of $1,200 with a probability of 40 percent over the next month. What is this bank's expected liquidity deficit or surplus next month? A. $880 million liquidity surplus B. $440 million liquidity deficit C. $440 million liquidity surplus D. $880 million liquidity deficit E. None of the options is correct

how is the answer C how do we solve it?

Question

Business

Mara Chen

15 November, 02:31

A bank money manager estimates that the bank will experience a liquidity deficit of $400 million with a probability of 10 percent, a liquidity deficit of $900 million with a probability of 20 percent, a liquidity surplus of $600 million with a probability of 30 percent, and a liquidity surplus of $1,200 with a probability of 40 percent over the next month. What is this bank's expected liquidity deficit or surplus next month? A. $880 million liquidity surplus B. $440 million liquidity deficit C. $440 million liquidity surplus D. $880 million liquidity deficit E. None of the options is correct

how is the answer C how do we solve it?

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Answers (1)

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Aurora Chung · Answer 1

C. $440 million liquidity surplus

Explanation:

The computation of the expected liquidity deficit or surplus is shown below:

= Liquidity deficit * probability + liquidity deficit * probability + liquidity surplus * probability + liquidity surplus * probability

= - $400 million * 10% + - $900 million * 20% + $600 million * 30% + $1,200 million * 40%

= - $40 million - $180 million + $180 million + $480 million

= $440 million liquidity surplus

The surplus amount displayed in positive amount whereas deficit amount displayed in negative amount