An investor is considering a $15,000 investment in a start-up company. She estimates that she has probability 0.15 of a $5000 loss, probability 0.15 of a $10,000 loss, probability 0.15 of a $30,000 profit, and probability 0.55 of breaking even (a profit of $0). What is the expected value of the profit?
A)$10,500
B)$6750
C)$5000
D)$2250

Question

Quizplus · Accepted Answer

The expected value of the profit is calculated by multiplying each outcome by its probability and then summing these products. So, it's (0.15 * -$5000) + (0.15 * -$10,000) + (0.15 * $30,000) + (0.55 * $0) = -$750 + (-$1500) + $4500 + $0 = $2250.

An Investor Is Considering a $15,000 Investment in a Start-Up