MR. JAVEE OWNS A PIECE OF LAND THAT IS ADJACENT TO A BIG AREA OF A...

81.Mr. Javee owns a piece of land that is adjacent to a big area of a vacant lot owned by the

city government. Recently, Mr. Javee heard that the city government has plans about the

vacant lot. He inquired about such plans and he was given the following, including each

plan’s probability of occurrence:

Probability

Plan A – Lease the lot to a businessman who will construct a mall on the lot 60%

B – Construct a theme park on the vacant lot 30%

C – Construct a building that will house some of the city government’s offices 10%

Mr. Javee knows that the value of his land, which he acquired ten years ago at a cost of

only P500 per square meter, will increase depending on which plan would materialize. His

estimates are as follows:

Plan A – P5,000 per square meter

B – 2,000

C – 1,000

What is the expected value of the land?

a. P5,000 c. P2,667

b. P3,000 d. P3,700