If an investment will return $1,500 half of the time and $700 half of the time, the expected value of the investment is:
A) $1,250.
B) $1,050.
C) $1,100.
D) $2,200.

Question

Quizplus · Accepted Answer

The expected value is calculated by taking the weighted average of all possible outcomes, where the weights are the probabilities of each outcome occurring.

In this case, there are two outcomes: 
- Return of $1,500 with a probability of 0.5
- Return of $700 with a probability of 0.5

Expected value = (0.5 x 1,500) + (0.5 x 700) 
Expected value = 750 + 350 
Expected value = $1,100

Therefore, the best choice is C.

If an Investment Will Return $1,500 Half of the Time