Question

Your friend is asking you to invest in his bakery, and you have 35000. The returns are volatile, and you may get either 43000 with a probability of 0.44 or 27000 with a probability of 0.56.

Answer 1

Those are the questions:

a. What is the expected value of the investment?  

b. Will you buy the refrigerator? Why? 

c. Identify the mean, variance, and standard deviation.

(a) The expected value is $43000*0.44+35000*0.56=34040$

(b) It would more likely unprofitable to buy refrigerator cause there is higher probability of disadvantageously outcome

(c) The mean is $(43000+27000)*0.5=35000$

The variance is $43000^{2}*0.44+27000^{2}*0.56 - 34040^{2}=63078400$

The standart deviation is the square root from the variance and equal to 7942.19