Question

Calculate the expected gain or loss for Stock ABC. Lose $25 Gain $5 Gain $45 Stock ABC 40% | 15% | 45% Stock JKL| 15% | 65% | 20% Stock MNO| 5% | 80%| 15%

Answer 1

$11

Explanation:

`\left\begin{array}ccc&$Lose \$25&$Gain \$5&$Gain \$45\\$Stock ABC&40\%&15\%&45\%\end{array}\right`

We want to calculate the expected gain or loss of Stock ABC with the probabilities above.

Note that loss is written in negative.

`E$xpected Value =$ (-25 * 40\%)+(5 * 15\%) + (45 * 45\%)\\=(-25 * 0.4)+(5 * 0.15)+(45 * 0.45)\\=-10+0.75+20.25\\=\$11`

Stock ABC has an expected gain of $11.