An investor is considering a $25,000 investment in a start-up company. She estimates that she has probability 0.2 of a $15,000 loss, probability 0.15 of a $20,000 loss, probability 0.05 of a $40,000 Profit, and probability 0.6 of breaking even (a profit of $0). What is the expected value of the profit?
A) $11,000
B) $1,667
C) -$4,000
D) $8,000

Question

Quizplus · Accepted Answer

The expected value is calculated as: (0.2 * -15000) + (0.15 * -20000) + (0.05 * 40000) + (0.6 * 0) = -3000 - 3000 + 2000 + 0 = -$4,000.

An Investor Is Considering a $25,000 Investment in a Start-Up