Question

What is the expected value of a stock investment of $20,000 that has a 25% chance of decreasing to a value of $18,000, a 25% chance of maintaining a value of $20,000, and a 50% chance of increasing to a value of $25,500?

Answer 1

Answer:

22,250

Step-by-step explanation:

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Answer 2

Answer:

Expected value of the investment is $ 22,250

Step-by-step explanation:

Expected value of  the investment=probability of first outcome*value of first outcome+probability of second outcome*value of second outcome+probability of third  outcome*value of third outcome

probability of  first outcome is 25% =0.25

probability of  second  outcome is 25% =0.25

probability of  third   outcome is 50% =0.50

value of first outcome is $18,000

value of  second outcome is $20,000

value of third  outcome is $25,500

expected value of investment=0.25*$18,000+0.25*$20,000+0.50*$25,500

                                                  =$4500+$5000+$12750

                                                   =$22,250