You have the opportunity of making a $5,000 investment. The outcomes one year from now will be either $4,500 or $6,000 with an equal chance of either outcome occurring. What is the expected outcome?
A) $4,500
B) $6,000
C) $5,250
D) $5,750
E) $5,000

Question

Quizplus · Accepted Answer

The expected outcome is calculated by taking the average of all possible outcomes, weighted by their probabilities. Here, it is (0.5 * $4,500) + (0.5 * $6,000) = $5,250.

You Have the Opportunity of Making a $5,000 Investment