Question

A cereal company issues coupons that can be exchanged for boxes of cereal. It issues two million coupons that promise the retailer who redeems the coupons $1 per coupon. The probability of redemption of any one coupon is 10%. What is the amount of the liability that the company recognizes?

a.

$2,000

b.

$20,000

c.

$100,000

d.

$200,000

e.

$2,000,000

Answer 1

Ans is d. $200,000

Explanation: No of coupon issued                  = 2,000,000

Value of 1 coupon                                         = x $1

Total Value of coupons                                 = $2,000,000

Multiplied by Probability of redemption         = x 10%

Amount of Liability                                      = $200,000

Note: I have tried my best for correct solution and work , still you need any further help, please ask in comment and don’t forget to rate positively.