Answer to Question #312031 in Statistics and Probability for Arjay_19 Sab 07

Question

Investment

A person may earn ₱100,000.00 by investing in the stocks of an international 

company with a probability of 0.40 or lose ₱35,000.00 over the same period 

with a probability of 0.60. Let X denote the net gain of a person who will invest 

in the company, construct the probability distribution of X, and compute for 

the expected value of a person who will invest in the same company. Interpret 

the result

Answer 1

Probability P(X) Net gain(X)

0.4. 100,000

0.6. -35,000

The expected value is:

E(X)=$\sum$ X.P(X)

= 0.4(100,000) + 0.6(-35,000)

=19,000

The expected gain is ₱19,000. This means that on average, the net gain of a person who will invest in the stocks of the international company is approximately equal to ₱19,000.