Complete question :
a store specializing in mountain bikes is to open in one of two malls if the first mall is selected the store anticipates a yearly profit of $825,000 if successful a yearly loss of 275,000 otherwise the probability of success is 1/2 if the second mall is selected it is an estimated that the yearly profit will be 550,000 if successful otherwise the annual loss will be 165,000 the probability of success at the second mall is three Fourth (3/4).
What is the expected profit of thesecond mall?
Answer:
$453,750
Explanation:
Given the following :
First mall:
Profit if successful = $825,000
Loss if otherwise = $275000
Probability of success = 1/2
Second mall:
Profit if successful = $550,000
Loss if otherwise = $165,000
Probability of success = 3/4
Expected profit of second mall:
If probability of profit ' P(profit)' = 3/4
Then,
Probability of loss P(loss) = 1 - P(profit)
P(loss) = 1 - 3/4 = 1/4
Expected profit:
[P(profit) * profit] + [P(loss) * loss])
(0.75 * $550,000) + (0.25 * (-$165,000))
$412,500 - $41,250 = $453,750