Modigliani and Associates has forecasted the following payoffs from a project: What is the expected value of the outcomes?

Question

Modigliani and Associates has forecasted the following payoffs from a project:  What is the expected value of the outcomes?

Quizplus · Accepted Answer

The expected value of the outcomes is the weighted average of the payoffs, where the weights are the probabilities of each outcome. Since the problem does not provide any information about the probabilities, we assume they are all equally likely. Therefore, the expected value is the average of the payoffs: (2000+3000+4000+5000)/4 = $3,300. Option B is the only one that matches this value.

Modigliani and Associates Has Forecasted the Following Payoffs from a Project