Question

A project has the following projected outcomes in dollars: $230, $340, and $590. The probabilities of their outcomes are 25%, 55%, and 20% respectively. What is the expected value of these outcomes? $362.50 $347.50 $407.50 $377.50

Answer 1

$362.5

Explanation:

Given that :

x : _____ 230 ______340 ______ 590

P(x): ____0.25______0.55 _____ 0.20

To obtain the expected value E(x) of the outcome ; we can use the formula :

E(x) = Σ(x * P(x))

E(x) = (230 * 0.25) + (340 * 0.55) + (590 * 0.20)

E(x) = 57.50 + 187 + 118

E(x) = 362.50