Friday, May 10, 2013

Expected Value Exercise 9




Expected Value Exercise 9



Suppose an investor is concerned about a business choice in which there are three prospects—the probability and returns are given below:
Probability
Return
0.4
$100
0.3
30
0.3
-30

What is the expected value of the uncertain investment? 
What is the variance?

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4 comments:

  1. pammyMay 10, 2013 at 9:44 AM

    EV = (Pr1xX1) + (Pr2xX2) + (Pr3xX3)
    = (0.4 x 100) + (0.3 x 30 ) + (0.3 x -30)
    =40 + 9 + -9
    =40

    Variance = Pr1 ((X1-E(x))square + Pr2 ((X2-E(x))square + Pr3 ((X3-E(x))square
    = 0.4 (100 - 40) square + 0.3 (30 - 40)square + 0.3(-30-30)square
    = 1440+ 30 + 1080
    =2550

    ReplyDelete
  2. UnknownMay 10, 2013 at 10:31 AM

    EV: (0.4x100)+(0.3x30)+(0.3x-30)=90

    variance: 0.4(100-40)2 + 0.3(30-40)2 + 0.3(-30-30)2= 2550

    ReplyDelete
  3. UnknownMay 11, 2013 at 7:32 AM

    E(v) = p1 (x1)+p2(x2)... + pn(xn)
    = 0,4(100)+ 0,3 (30)+ 0,3(-30)
    =$40

    V= 0.4 (100 - 40)kuadrat + 0.3 (30 - 40)kuadrat+ 0.3(-30-40)kuadrat
    Variance =2940

    ReplyDelete
  4. Rully MangunsongMay 12, 2013 at 8:03 AM

    ANSWER:

    The expected value of the return on this investment is
    EV = (0.4)(100)  (0.3)(30)  (0.3)(30) = $40.

    The variance is
    (0.4)(100  40)2  (0.3)(30  40)2  (0.3)(30  40)2 = 2940.

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