Final answer:
The expected profit of investing $1,000 in a company's stock with given probabilities is $150. Investment risk refers to the volatility of potential outcomes; stocks typically have higher risk and return compared to bonds and savings accounts.
Step-by-step explanation:
Calculating Expected Profit and Assessing Investment Risk:
Calculation of Expected Profit and Measures of Central Tendency:
To find the expected profit after one year for the stock investment, we use the given probabilities and corresponding outcomes.
The expected profit (E) is calculated as follows:
E = (Probability of a loss × Amount of loss) + (Probability of no change × Amount of no change) + (Probability of gain × Amount of gain).
Plugging in the values:
E = (0.35 × -$1,000) + (0.60 × $0) + (0.05 × $10,000) = -$350 + $0 + $500 = $150.
The expected profit after one year is $150.
As for the household value question, the existence of an outlier (a house worth $2,500,000) suggests that the median would be a better measure of the center as it is not affected by extreme values. The mean would be skewed by the outlier and would not represent the typical value of the households.
In the context of investment returns, it's important to understand that risk, return, and their relationship. High risk does not necessarily mean low return; rather, risk implies a wide range of possible outcomes.