Question

The Triple L investment club is considering purchasing a certain stock. After considerable research, the club members determine that there is a 70% chsnce of making $12,000, 10% chance of breaking even, and a 20% chance of lising $7400. Finf the expectation if this purchase.
The expected value is $

Answer 1

Since there is a 70% chance of making $12,000 so have that:

.70 × 12000 = 8400

Also, we have a 10% chance of breaking even, so we also have that:

.10 × 0 = 0

Finally, we have a 20% chance of losing $7400 so we also have that:

.20 × 7400 = 1480

Thus, putting it all together we have:

.70(12000) + .10(0) + .20(7400) = 8400 + 0 + 1480 = 9880

Therefore, the expected value is:

$9880