Firm X is considering a project and its analysts have projected the following outcomes and their probabilities. What is the expected value of the outcomes?

Question

Firm X is considering a project and its analysts have projected the following outcomes and their probabilities.  What is the expected value of the outcomes?

Quizplus · Accepted Answer

To find the expected value, we multiply each outcome by its probability and then add them up.

Expected Value = (500 x 0.1) + (1000 x 0.15) + (2000 x 0.20) + (5000 x 0.35) + (10000 x 0.20)

Expected Value = $8,873

Therefore, the answer is option C.

Firm X Is Considering a Project and Its Analysts Have