venture capitalist, willing to invest $1,000,000 has three investments to choose from. The first investment, a software company, has a 10% chance of returning $5,000,000profit, a 30% chance of returning $1,000,000 profit, and a 60% chance of losing the million dollars. The second company, a hardware company, has a 20%chance of returning $3,000,000 profit, a 40% chance of returning $1,000,000profit, and a 40%chance of losing the million dollars. The third company, a biotech firm, has a 10% chance of returning $6,000,000 profit, a 70%of no profit or loss, and a 20% chance of losing the million dollars. (a) Construct a PDF for each investment. Enter the exact answers as fractions or decimals. x P(x) −1,000,000 1,000,000 5,000,000 software company^ x P(x) −1,000,000 1,000,000 3,000,000 hardware company^ x P(x) −1,000,000 0 6,000,000 Biotech firm (b) Find the expected value for each investment. Software company: $ Hardware company: $ Biotech firm: $ (c) Which is the safest investment (which investment has the lowest probability of loss)?
A venture capitalist, willing to invest $1,000,000 has three investments to choose from. The first investment, a software company, has a 10% chance of returning $5,000,000profit, a 30% chance of returning $1,000,000 profit, and a 60% chance of losing the million dollars. The second company, a hardware company, has a 20%chance of returning $3,000,000 profit, a 40% chance of returning $1,000,000profit, and a 40%chance of losing the million dollars. The third company, a biotech firm, has a 10% chance of returning $6,000,000 profit, a 70%of no profit or loss, and a 20% chance of losing the million dollars.
(a) Construct a
Enter the exact answers as fractions or decimals.
| x | P(x) |
|---|---|
| −1,000,000 | |
| 1,000,000 | |
| 5,000,000 |
software company^
| x | P(x) |
|---|---|
| −1,000,000 | |
| 1,000,000 | |
| 3,000,000 |
hardware company^
| x | P(x) |
|---|---|
| −1,000,000 | |
| 0 | |
| 6,000,000 |
Biotech firm
(b) Find the
Software company: $
Hardware company: $
Biotech firm: $
(c) Which is the safest investment (which investment has the lowest probability of loss)?
|
Software company |
||
|
Hardware company |
||
|
Biotech firm |
(d) Which is the riskiest investment (which investment has the highest probability of loss)?
|
Software company |
||
|
Hardware company |
||
|
Biotech firm |
(e) Which investment has the highest expected return, on average?
|
Software company |
||
|
Hardware company |
||
|
Biotech firm |
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