There is a 30% probability that an office building will be sold after 5 years for $30 million, a 50% probability that it will be sold for $20 million and a 20% probability that it will be sold for $10 million. What is the expected value of the office building in 5 years?
A) $20 million
B) $21 million
C) $30 million
D) $10 million

Question

Quizplus · Accepted Answer

Expected value = (Probability of outcome A * Value of outcome A) + (Probability of outcome B * Value of outcome B) + (Probability of outcome C * Value of outcome C)

Expected value = (0.3 * 30) + (0.5 * 20) + (0.2 * 10)
Expected value = 9 + 10 + 2
Expected value = $21 million

There Is a 30% Probability That an Office Building Will