Question

an investor is considering a $15000 investment in a startup company. she estimates that she has a probability of 0.25 of a $5000 loss, probability of 0.1 of a $10,000 loss, probability 0.15 of a $25,000 profit. Probability 0.5 of breaking even with 0. What's the expected value of profit​

Answer 1

To calculate the expected value of profit, multiply each possible profit/loss by its corresponding probability and sum up all the values. In this case, the expected value of profit for the $15,000 investment in the startup company is $6,000.

Step-by-step explanation:

To calculate the expected value of profit for the investment, we need to multiply each possible profit/loss by its corresponding probability and then sum up all the values.

In this case, we have:

• Probability of a $5,000 loss: 0.25
• Probability of a $10,000 loss: 0.1
• Probability of a $25,000 profit: 0.15
• Probability of breaking even with $0: 0.5

Expected value = ($5,000 loss * 0.25) + ($10,000 loss * 0.1) + ($25,000 profit * 0.15) + ($0 * 0.5)

Expected value = $1,250 + $1,000 + $3,750 + $0

Expected value = $6,000

Therefore, the expected value of profit for the $15,000 investment in the startup company is $6,000.