1st Edition

ISBN: 9781938168208

Author: Barbara Illowsky, Susan Dean

Publisher: OpenStax College

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Textbook Question

Chapter 4, Problem 75H

A venture capitalist, willing to invest 51.000,000. has three investments to choose from. The first Investment, a software company, has a 10% chance of returning 55,000.000 profit, a 30% chance of returning S 1,000,000 profit, and a 60% chance of losing the million dollars. The second coftany, a hardware corrany, has a 20% chance of returning S3.000,000 profit, a 40% chance of returning Sl,000,000 profit, and a 0% chance of losing the million dollars. The third company a biotech firm, has a 10% chance of returning $6000000 profit, a 70% of no profit loss, and a 20% chance of losing the million dollars.

a. Construct a PDF for each investment.

b. Find the expected ‘a1ue for each investment.

c. Which Is the safest Investment? Why do you think so?

d. Which is the riskiest investment? Why do you think so?

e. Which Investment has the highest expected return, on average?

Definition Definition Probability of occurrence of a continuous random variable within a specified range. When the value of a random variable, Y, is evaluated at a point Y=y, then the probability distribution function gives the probability that Y will take a value less than or equal to y. The probability distribution function formula for random Variable Y following the normal distribution is: F(y) = P (Y ≤ y) The value of probability distribution function for random variable lies between 0 and 1.

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Chapter 4, Problem 74H

Chapter 4, Problem 76H

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