Question

John is interested in purchasing a multi-office building containing five offices. The current owner provides the...

John is interested in purchasing a multi-office building containing five offices. The current owner provides the following probability distribution indicating the probability that the given number of offices will be leased each year.

Number of Lease Offices 0 1 2 3 4 5
Probability 2/7 3/35 6/35 1/7 9/35 2/35


If each yearly lease is $12,000, how much could John expect to collect in yearly leases for the whole building in a given year?(in dollars)

Homework Answers

Answer #1
Number of lease offices (X) 0 1 2 3 4 5
Probability , P(X) 2/7 3/35 6/35 1/7 9/35 2/35

So, Expected number of lease offices = E(X) = X * P(X) = 0 * 2/7 + 1 * 3/35 + 2 * 6/35 + 3 *1/7 + 4 * 9/35 + 5 * 2/35

= 2.17143

each yearly lease is $12,000

So , John could expect to collect in yearly leases for the whole building in a given year = 2.17143 * $12,000

= $ 26057.16 [Ans]

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