Use the following to answer the question(s) below.
As a result of the financial crisis in the fall of 2008, when the government intervened to help the economy, an investor was considering various strategies for her money and the estimated profits would depend on how successful the intervention would be in helping the economy. The estimated annual return for two different investment strategies are shown in the following table.
-If there is a 30% chance that the economy will decline, 50% that there will be no change and 20% chance that it will rebound, the expected value associated with the best investment strategy is
A) $590.
B) -$250.
C) $1290.
D) $700.
E) -$450.

Question

Use the following to answer the question(s) below.
As a result of the financial crisis in the fall of 2008, when the government intervened to help the economy, an investor was considering various strategies for her money and the estimated profits would depend on how successful the intervention would be in helping the economy. The estimated annual return for two different investment strategies are shown in the following table. 
-If there is a 30% chance that the economy will decline, 50% that there will be no change and 20% chance that it will rebound, the expected value associated with the best investment strategy is
A) $590. 
B) -$250. 
C) $1290. 
D) $700. 
E) -$450.

Quizplus · Accepted Answer

The expected value is the sum of the products of the probabilities and the outcomes. In this case, the expected value is (0.3 * -1000) + (0.5 * 0) + (0.2 * 2000) = $590.

Use the Following to Answer the Question(s) Below