The demand for MICHTECs products is related to the state of the economy.

If the economy is expanding next year (an above-normal growth in GDP), the company expects sales to be $90 million. If a recession occurs next year (a decline in GDP), sales are expected to be $75 million. If next year is normal (a moderate growth in GDP), sales are expected to be $85 million. MICHTECs economists estimate the chances that the economy will be either expanding, normal, or in a recession next year at 0.2, 0.5, and 0.3 respectively. Expected economy condition Expanding Probability, pi Expected annual sales, ri 0.2 $90 million Normal 0.5 $75 million Recession 0.3 $85 million

a. Compute expected annual sales. Expected economy condition Expanding Probability, pi Expected annual sales, ri ri X pi Expected annual sales of next year, 0.2 $90 million $18 million Normal 0.5 $75 million $37.5 million Recession 0.3 $85 million $25.5 million

(ri X pi) = 18 + 37.5 + 25.5 = $81 million

b. Compute the standard of deviation of annual sales. Expected economy condition Expanding Normal Recession Standard of deviation of annual sales ri $ $ million million 90 81 75 85 81 81 ri$ million 9 -6 4 (ri- )2 $ million 81 36 16 (ri= (ripi 0.2 0.5 0.3 )2 pi = (ri- )2 pi $ million 16.2 18 4.8 39

)2 pi = 39 = $6.25 million

c. Compute the coefficient of variation of annual sales. Coefficient of variation of annual sales, c.v. = /

= $6.25 million / $81 million = 0.077