Answer to Question #275805 in Statistics and Probability for feey

Question

An investor is considering a $25,000 investment in a start-up company. She estimates that she

has

probability 0.05 of a $15,000 loss, probability 0.15 of a $20,000 loss, probability 0.35 of a $35,000 profit,

and probability 0.45 of breaking even (a profit of $0). What is the expected value of the profit?

Answer 1

$$E(X)=0.05(-15000)+0.15(-20000)$$ $$+0.35(35000)+0.45(0)=8500$$

The expected value of the profit is $8500 profit.