Question

Which plan has the plan with higher payout?

Plan A
Payout P(Payout)
−$5000 0.14
$30,000 0.37
$55,000 0.49
Plan B
Payout P(Payout)
$5000 0.34
$30,000 0.26
$60,000 0.4

Answer 1

plan B has a higher payout

Step-by-step explanation:

To determine plan with higher payout, we would find the expected value for each of them

`\begin{gathered} \text{Expected value = sum of product of probability and the values} \\ \text{Expected value =}\sum ^{}_{}x\text{P (x) } \end{gathered}`

Plan A:

`\begin{gathered} \text{Expected value = 0.14(-15000) + 0.67(5000) + 0.19(80000)} \\ \text{Expected value = 16450} \end{gathered}`

Plan B:

`\begin{gathered} \text{Expected value = 0.32(-10000) + 0.06(5000)+0.62}(50000) \\ \text{Expected value = }28100 \end{gathered}`

Plan B value is higher than Plan A.

Hence, plan B has a higher payout