### BNQ12.2#### Case:Suppose an **Investor** is concerned about a **Business Choice** in which there are **3 prospects**—the **Probabilities** and **Returns** are given below:| Probability | Return ||-------------|--------|| 0.4 | $100 || 0.3 | 30 || 0.3 | -30 |### Question:What is the **Expected Value** of the **Uncertain Investment**?---To calculate the expected value of the uncertain investment, you multiply each return by its respective probability and sum these values:\[ \text{Expected Value} = (0.4 \times 100) + (0.3 \times 30) + (0.3 \times -30) \]

The expected value of a random variable is computed as the sum of all possible values of a random variable multiplied by their respective probabilities.Given information:There are three possible values of return on an investment. There would be a return of $100 with a probability of 0.4There would be a return of $30 with a probability of 0.3There would be a return of -$30 with a probability of 0.3________________________________________________________________Calculation of expected value:EV = ($100 × 0.4) + ($30 × 0.3) + (-$30 × 0.3)=> EV = $40 + $9 - $9=> EV = $40. Hence, the expected value of the uncertain investment is $40.___________________________________________________________________The expected value of the uncertain investment is $40.Answer: $40

Answered: Suppose an Investor is concerned about…

Business

Economics

Suppose an Investor is concerned about a Business Choice in which there are 3 prospects the Probabilities and Returns are given below: Probability Return

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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