Problem

The Triple L investment club is considering purchasing a certain stock. After considerable research, the club members determine that there is a 50% chance of making $10,000, a 10% chance of breaking even, and a 40% chance of losing $6,200. Find the expectation of this purchase.

The expected value is $.

Answer

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Answer

Final Answer: The expected value is 2520

Steps

Step 1 :The Triple L investment club is considering purchasing a certain stock. After considerable research, the club members determine that there is a 50% chance of making 10,000,a106,200. We are asked to find the expectation of this purchase.

Step 2 :The expectation of a random variable is the sum of the products of each outcome and its probability. In this case, the outcomes are making 10,000,breakingeven(making0), and losing $6,200. The probabilities are 50%, 10%, and 40% respectively.

Step 3 :We can calculate the expectation by multiplying each outcome by its probability and then summing these products. The outcomes are 10,000,0, and -$6,200. The probabilities are 0.5, 0.1, and 0.4 respectively.

Step 4 :The expectation is calculated as follows: 0.510000+0.10+0.4(6200)=2520

Step 5 :Final Answer: The expected value is 2520

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