1.Louis has invested $1,000 in the stock market. At the end of one year, there is a 30% chance that his stock will be worth only $800 and a 70% chance that it will be worth $1,200. The expected value of his stock at the end of one year is: A)$1,000. B)$1,080. C)$1,200. D)$1,160.
1.Louis has invested $1,000 in the stock market. At the end of one year, there is a 30% chance that his stock will be worth only $800 and a 70% chance that it will be worth $1,200. The expected value of his stock at the end of one year is:
A)$1,000.
B)$1,080.
C)$1,200.
D)$1,160.
2.Domingo has a total wealth of $500,000 composed of a house worth $100,000 and $400,000 in cash. He keeps the cash in a safe deposit box, so that it is completely safe. However, there is a 10% chance that his house will burn down by the end of the year and be worth nothing and a 90% chance that nothing will happen to it. Without insurance, the expected value of his end-of-year wealth is:
A)$410,000.
B)$450,000.
C)$490,000.
D)$485,000.
3.Micah is considering turning pro before his senior year basketball season. If he turns pro, Micah expects a pro contract worth $2 million in present value. If he does not turn pro, there is a 50% chance an injury will prevent him from playing professionally and a 50% chance he will get a pro contract worth $4 million in present value. What is the expected present value of Micah's pro contract if he stays in college for his senior year?
A)$3.5 million
B)$5 million
C)$2 million
D)$0
4.Amanda recently graduated from college, and she has a job offer with uncertain income: there is a 70% probability that she will make $10,000 and a 30% probability that she will make $70,000. The expected value of Amanda's income is:
A)$40,000.
B)$21,000.
C)$28,000.
D)$10,000.
5.A random variable:
A)has an uncertain
B)has a constant value.
C)doesn't exist in economics.
D)is useless in economic decision making.
6.The expected value of a random variable is:
A)the most frequently occurring value of that variable.
B)the most recent value of that variable.
C)the weighted average of all possible values, where the weights on each possible value correspond to the probability of that value occurring.
D)impossible to determine.
7.If there is a 25% probability that Joseph will earn $10 per hour at his job today and a 75% probability that he will earn $20 per hour today, his expected pay per hour is:
A)$10.00.
B)$15.00.
C)$17.50.
D)$20.00.
8.If there is a 50% probability that Joseph will earn $10 per hour at his job today and a 50% probability that he will earn $20 per hour today, his expected pay per hour is:
A)$10.00.
B)$12.50.
C)$15.00.
D)$20.00.
9.If a stock analyst believes there is a 25% probability that the stock price of Dymonatis will be $30 at the end of the year, a 50% probability that it will be $40, and a 25% probability that it will be $50, then the expected value of the stock at the end of the year is:
A)$30.
B)$35.
C)$40.
D)$50.
10.If a stock analyst believes there is a 10% probability that the stock price of Dymonatis will be $30 at the end of the year, a 50% probability that it will be $40, and a 40% probability that it will be $50, then the expected value of the stock at the end of the year is:
A)$32.
B)$38.
C)$40.
D)$43.
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