Question

There is a 40% chance that you will loose $25,000 if you invest in a company. But there is a 25% chance that you will break even and a 35% chance that you will make $40,000. What is the epected value of the investment?

Answer 1

Answer: 4,000$

Step-by-step explanation: You want to multiply the ratios of each thing, and then add them.

0*0.25 + 0.35*40,000+0.4*-25,000, which equals 4,000

Answer 2

`E[x] = \sum{p_i*x_i}`
=0.4(-25000)+0.25*0+0.35(40000)
=-10000+0+14000
=+4000