Question

A man wants to decide whether to invest $1000 in a friend's speculative venture. He will do so if he thinks he can get his money back in one year. He believes the probabilities of the various outcomes at the end of one year are as follows:

Result probability
$2000 .3,
$1500 .1
$1000 .2,
$500 .3
$0 .1
What would be his expected outcome if he invests the $1000?

Answer 1

His expected outcome would be $1,100.

Step-by-step explanation:

Expected outcome is the sum of the product of all the results and probabilities.

For this question, this can be calculated as follows:

Expected outcome = ($2000 * 0.3) + ($1500 * 0.1) + ($1000 + 0.2) + ($500 * 0.3) + ($0 * 0.1)

Expected outcome = $600 + $150 + $200 + $150 + $0

Expected outcome = $1,100

Therefore, his expected outcome would be $1,100.