The figure given below shows the demand curves [D 1 and D 2 ] and the supply curve [S 1 ] of capital.Figure 17.1

-Shane holds wealth worth $10,000. He considers investing it equally in two gambles one of which has a probability of 0.6 to yield a return of 10% and the other has a probability of 0.4 to yield a return of 20%. What will be Shane's total expected return from the two gambles?

Question

The figure given below shows the demand curves [D 1 and D 2 ] and the supply curve [S 1 ] of capital.Figure 17.1
 
-Shane holds wealth worth $10,000. He considers investing it equally in two gambles one of which has a probability of 0.6 to yield a return of 10% and the other has a probability of 0.4 to yield a return of 20%. What will be Shane's total expected return from the two gambles?

Quizplus · Accepted Answer

The total expected return can be calculated by finding the expected return from each gamble and then summing them up. For the first gamble, the expected return is 0.6 * 10% * $5,000 = $300. For the second gamble, the expected return is 0.4 * 20% * $5,000 = $400. Adding these together gives a total expected return of $700.

The Figure Given Below Shows the Demand Curves [D1 and D2]

The Figure Given Below Shows the Demand Curves [D₁ and D₂]