Tiffany Ham's business is thriving in Houston, TX. To reward her team, Tiffany is implementing a performance incentive program. Annual Bonuses begin at $5,000 for excellent performance, $3,000 for good performance, and $1,500 for fair performance, and $0 for poor performance.
-The probability levels are 0.15, 0.40, 0.25, and 0.20, respectively. What is the expected value of the annual bonus amount for an employee?
A) $1,875
B) $2,300
C) $2,325
D) $2,375

Question

Tiffany Ham's business is thriving in Houston, TX. To reward her team, Tiffany is implementing a performance incentive program. Annual Bonuses begin at $5,000 for excellent performance, $3,000 for good performance, and $1,500 for fair performance, and $0 for poor performance. 
-The probability levels are 0.15, 0.40, 0.25, and 0.20, respectively. What is the expected value of the annual bonus amount for an employee?
A) $1,875
B) $2,300
C) $2,325
D) $2,375

Quizplus · Accepted Answer

The expected value (EV) of the annual bonus amount for an employee can be calculated using the formula: EV = Σ (probability of each outcome * value of each outcome). Thus, EV = (0.15 * $5,000) + (0.40 * $3,000) + (0.25 * $1,500) + (0.20 * $0) = $750 + $1,200 + $375 + $0 = $2,325.

Tiffany Ham's Business Is Thriving in Houston, TX