Question

You have invested in a project that has the following payoff​ schedule: Probability of Payoff Occurrence ​ $40 .15 ​ $50 .20 ​ $60 .30 ​ $70 .30 ​ $80 .05 What is the expected value of the​ investment's payoff?​ (Round to the nearest​ $1.)

Answer 1

Answer:

$59

Explanation:

The investment payoff is calculated by multiplying each payoff value by the probability of occurrence.Expected investment payoff calculations are done for proper bsiness decision making.

The investment payoff is calculated by multiplying each payoff value by the probability of occurrence.

=$40 x .15  = $6

+

=$50 x .20 = $10

+

=$60 x .30 = $18

+

=$70 x .30 = $21

+

=$80 x .05 = $4

=$59

Therefore, the expected for the investment payoff is $59

Answer 2

Answer:

$59.

Explanation:

The expected value of investment's payoff is the amount of profit or loss that an investor is anticipating to receive. It is the investor's expectation regarding the returns of the security that he is going to invest in. The expected value of payoff is calculated by multiplying the profit/loss under each scenario with its respective probability (chances), and then adding all the results. This tool is based on the assumption that "history tends to repeat itself" because it used historical data to calculate these payoffs and theirs probabilities. The formula to calculate the expected value is given below:

$E(R_i) = SUM (Return_{i} * Probability_i)$

where

i = Each know payoff and its respective probability under each scenario

⇒ Expected value of Payoff = [(40 * .15) + (50 * .20) + (60 * .30) + (70 * .30) + (80 * .05)]

= 6 + 10 + 18 + 21 + 4 = $59.

The means that the investor is expecting that on average the overall payoff of this project will be $59.