Question

What is the Expected payoff from the below: 10% Chance of 1,000,000 30% Chance of 500,000 60% Chance of -300,000

a. -180,000
b. 180,000
c. 10,000
d. 220,000
e. 70,000

Answer 1

To find the expected payoff, multiply each monetary outcome by its probability and add them together; for the given situation, the expected payoff is $70,000.

Step-by-step explanation:

To calculate the expected payoff of a set of outcomes, you multiply each outcome by its probability and then sum those products. In this scenario, we have a 10% chance of winning $1,000,000, a 30% chance of winning $500,000, and a 60% chance of losing $300,000. Using the formula for expected value:

• (0.10 × $1,000,000) = $100,000
• (0.30 × $500,000) = $150,000
• (0.60 × -$300,000) = -$180,000

Adding them all up:

$100,000 + $150,000 - $180,000 = $70,000.

Therefore, the expected payoff from these three outcomes is $70,000.