Question
Suppose an investor is concerned about a business choice in which there are three prospects. The probability and returns are given below :
| Probability | Returns |
| 0.4 | 100 |
| 0.3 | 30 |
| 0.3 | -30 |
What is the expected value of the uncertain investment? What is the variance?
Answer :
Word Count : 267
To solve this, we need to calculate the expected value (mean) and variance of the investment. ### 1. Expected Value (E(X)) The expected value is the sum of the products of each possible return and its corresponding probability. \[ E(X) = \sum (P_i \times R_i) \] Where: - \( P_i \) is the probability of each return. - \( R_i \) is the return associated with _________ _____ ______ _______ ____ ______ ______ _____ ________ ___ ___ _______.
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To solve this, we need to calculate the expected value (mean) and variance of the investment. ### 1. Expected Value (E(X)) The expected value is the sum of the products of each possible return and its corresponding probability. \[ E(X) = \sum (P_i \times R_i) \] Where: - \( P_i \) is the probability of each return. - \( R_i \) is the return associated with _________ _____ ______ _______ ____ ______ ______ _____ ________ ___ ___ _______.
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