Question

There is 60% chance of making $12,000, 10% chance of breaking even and 30% chance of losing $6,200. What is the expected value of the purchase?

Answer 1

$5,340

Explanation:

Given :

Making a probability distribution :

X : ___12000 ____0 _____-6200

P(X) __ 0.6 _____ 0.1 _____ 0.3

Tge expected value of the purchase si equal to the expected value or average, E(X) :

E(X) = ΣX*p(X)

E(X) = (12000 * 0.6) + (0 * 0.1) + (-6200 * 0.3)

E(X) = 7200 + 0 - 1860

E(X) = $5,340