Alright, I have seen some pretty smart math guys in here, so I thought I would throw a question at you.
Scenario: A company has a contract with a 5 year life. The contract has an infinite number of renewal options. That is to say, at the end of the first five years, the company has an option to renew the contract for another 5 years. At the end of that 5 years, the company has another option to renew for 5 more years. And so on and so on. The Company has determined that there is an 80% probability that they will renew the contract at the end of the first 5 years. And if renewed, there would again be an 80% probability of them renewing again. And so on, and so on.
How long do you expect the contract to last?
That is the jist of it. Any factors I am leaving out that would be necessary, let me know. I have been out of school for far too long to remember this ****
Edit: Forgot the actual question