STATISTICS QUESTION – AN INVESTMENT CAN LEAD TO A PROFIT OF $10,000, $5,000, $4,000, AND $1,000.?

with particular probabilities of .4, .3, .2, as well as .05. In addition, there is the 3 percent possibility of violation even as well as the tiny possibility of losing $10,000. Find the approaching profit.

{ 2 comments… read them below or add one }

Tony June 21, 2010 at 5:05 am

Do you really mean, for example, that the probability of making $10,000 is greater than the probility of making $1000?

Hobart June 21, 2010 at 5:18 am

Multiply all the profits by their respective probabilities and add the products. Note that all probabilities must add up to 1.0.
Expected Profit = 0.40($10,000)+ 0.30($5,000) +0.20($1,000) +0.03($0) – 0.07($10,000) = $5,000

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