An individual is indifferent between receiving a guaranteed amount of $1,000 and taking a chance of receiving $1,500 with probability 0.75 and losing $800 with probability 0.25.What is the expected value of this gamble?
A)$1,000
B)$740
C)$925
D)$650

Question

Quizplus · Accepted Answer

The expected value of the gamble is calculated as (0.75 * $1,500) + (0.25 * -$800) = $1,125 - $200 = $925.

An Individual Is Indifferent Between Receiving a Guaranteed Amount of $1,000