Question

You invest in a stock. You have a 40% chance of losing $1200, 10% chance of losing $600, 20% chance of making $600, 5% chance of making $1200, and 25% chance of making $2400. Calculate your expected earnings or losses. Include the dollar symbol when entering the answer. (ex: $100)

a) -$220
b) -$320
c) -$420
d) -$520

Answer 1

To calculate your expected earnings or losses, multiply the possible outcomes by their respective probabilities and sum them up. The expected earnings or losses is $240.

Step-by-step explanation:

To calculate your expected earnings or losses, you need to multiply the possible outcomes by their respective probabilities and sum them up. Let's calculate:

-40% chance of losing $1200: -0.4 * $1200 = -$480
-10% chance of losing $600: -0.1 * $600 = -$60
20% chance of making $600: 0.2 * $600 = $120
5% chance of making $1200: 0.05 * $1200 = $60
25% chance of making $2400: 0.25 * $2400 = $600

Now, summing up the outcomes:
-$480 + -$60 + $120 + $60 + $600 = $240.

The expected earnings or losses is $240. Thus, the correct answer is a) -$240.