Question 995610: A speculative investment is one in which there is a high risk of loss. If you invest $1000, you have a 40% chance of loosing all your money. However, you have an equal chance of the following events: breaking even (no gain or loss), gaining $2000, gaining $5000, or gaining $10000
a) What is the expected value of the investment? (Make a table)
b) Explain what the number means in this context.
Answer by Boreal(15235)   (Show Source):
You can put this solution on YOUR website! Expected value is the sum of the following: Money made (+ or -) * probability
1000*40%= -400
0*15%=0
2000*15%=300
5000*15%=750
10000*15%=1500
The percentages add up to 100%, and the products add to + $2150.
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This means if one were able to invest $1000 over and over again, infinite times, the expected value of the amount invested would be $2150 on each $1000 invested.
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