An investment has the possibility of earning $10,000, $8,000 or $2,000 depending on the state of the economy that is prosperity, modern growth, and recession respectively. The probabilities of prosperity, moderate growth, and recession are .4, .3, and .3 respectively. The expected value of the investment is:
A) $10,000.
B) $21,000.
C) $7,000.
D) $3,000.
E) $8,000.

Question

Quizplus · Accepted Answer

The expected value is calculated by multiplying each outcome by its probability and summing the results: (0.4 * $10,000) + (0.3 * $8,000) + (0.3 * $2,000) = $7,000.

An Investment Has the Possibility of Earning $10,000, $8,000 or $2,000