Question

Imagine an investment with 3 possible outcomes. There's a 10% chance you'll LOSE the $1,000 you put in. There's an 80% chance you'll earn a $100 profit, and a 10% chance you'll earn a $300 profit. What is the expected value of making the investment?

Answer 1

In this case, the expected value of a discrete random variable is equal to the sum of the probability of occurrence of each event multiplied by the value of the result of said event.

Then, the possibilities of dollar gains multiply by their probability of occurrence and add up. In this way, the expected value in this problem is:

$0.1 * (-1000 ) + 0.8 * (100 ) + 0.1 * (300 ) = 10$

Finally, the expected value of making the investment is $ 10 net profit.

Answer 2

Using it's concept, it is found that the expected value of making the investment is $10.

The expected value is given by the sum of each outcome multiplied by it's probability.

In this problem:

• 10% chance of losing $1,000, thus, 10% chance of an outcome of -1000.
• 80% chance of earning $100.
• 10% chance of earning $300.

Hence, applying the expected value concept:

$E(x) = 0.1(-1000) + 0.8(100) + 0.1(300) = -100 + 80 + 30 = 10$

The expected value of making the investment is $10.

A similar problem is given at https://brainly.com/question/15647528