Question

In a proposed business venture, Serena estimates there is a 65% chance she will make
$70,000 and a 35% chance she will lose $30,000. Determine Serena's expected value.

Answer 1

Answer:

$35,000

Step-by-step explanation:

In a proposed business venture, Serena estimates that there is a 65% chance that she will make $70,000

And also a 35% chance that she will loose $30,000

Therefore the expected value can be calculated as follows

E= 65/100 × 70,000 + 35/100 × (-30,000)

= 0.65 × 70,000 + 0.35(-30,000)

= 45,500 - 10,500

= $35,000

Hence the expected value is $35,000

Answer 2

Based on the probability of the payoffs, we can calculate that the expected value is $35,000.

The expected value is calculated as:

= ∑(Probability of payoff x Payoff)

The expected value here is therefore:

= (65% x 70,000) + (35% x -30,000)

= 45,500 - 10,500

= $35,000

In conclusion, the expected value is $35,000.

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