Question

As the Chief Investment Officer for "A Nyce Place to Work" you have been given the opportunity to invest in the Super-Tazer. It is a tazer, that when you push the button incapacitates everyone in a 10 foot radius of you. You have figured out that there are three potential outcomes for this investment: Outcome Probability Return 1. .25 .10 2. .50 .25 3. .25 .40 What is the expected return on the investment? *Make sure your answer is in a decimal format (.10, .55, etc...) not a percentage (50%). Round (if necessary) to the hundreths position (i.e. .089 = .09).

Answer 1

Answer:

0.25

Explanation:

Given the following outcomes,

• Outcome 1: probability (P) = 0.25, return (R) = 0.10
• Outcome 2: P = 0.50, R = 0.25
• Outcome 3: P = 0.25, R = 0.40

The expected return on the investment

= $(P_{1}*R_{1})+(P_{2}*R_{2})+(P_{3}*R_{3})$

= (0.25 * 0.10) + (0.50 * 0.25) + (0.25 * 0.40)

= 0.025 +0.125 + 0.100

Expected return = 0.25.