In finance the notion of expected value is used to analyze investments for which the investor has an estimate of the chances associated with various returns (and losses). For example, suppose you have the following information about one of your investments: With a probability of 0.7, the investment will return 90 cents for every dollar you invest, and with a probability of 0.3, the investment will lose 30 cents for every dollar you invest. The expected rate of return for this investment is calculated the way we calculate the expected value of a game: Multiply the probability of each outcome by the amount you earn (or by minus the amount if you lose) and add up these numbers. Calculate the expected rate of return for the investment described above.

A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
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Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...
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In finance the notion of expected value is used to analyze investments for which the investor has an estimate of the chances associated with various returns (and losses). For example, suppose you have the following information about one of your investments: With a probability of 0.7, the investment will return 90 cents for every dollar you invest, and with a probability of 0.3, the investment will lose 30 cents for every dollar you invest. The expected rate of return for this investment is calculated the way we calculate the expected value of a game: Multiply the probability of each outcome by the amount you earn (or by minus the amount if you lose) and add up these numbers.

Calculate the expected rate of return for the investment described above.

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