What is the expected payoff of an investment that yields $5,000 with a probability of 0.15 and $500 with a probability of 0.85?
A) $325
B) $5,500
C) $1,175
D) $2,750

Question

Quizplus · Accepted Answer

Expected Payoff = (Probability of first outcome x value of first outcome) + (Probability of second outcome x value of second outcome)
Expected Payoff = (0.15 x 5000) + (0.85 x 500) = $750 + $425 = $1,175
Therefore, the best choice is C.

What Is the Expected Payoff of an Investment That Yields