Ask Question
17 December, 11:42

In finance the notion of expected value is used to analyze investments for which the investor has an estimate of the chances associated with various returns (and losses). For example, suppose you have the following information about one of your investments: With a probability of 0.7, the investment will return 60 cents for every dollar you invest, and with a probability of 0.3, the investment will lose 20 cents for every dollar you invest. The expected rate of return for this investment is calculated the way we calculate the expected value of a game: Multiply the probability of each outcome by the amount you earn (or by minus the amount if you lose) and add up these numbers.

+4
Answers (1)
  1. 17 December, 12:10
    0
    Step-by-step explanation:

    The expected return is given as

    Expected Return = SUM (Return i x Probability i). i=1,2,3 ...

    First investment

    Probability of 0.7, it returns 60cents per dollars

    Second investment

    Probably of 0.3, it loses 20cents per dollar.

    Expected return = (0.7*60) - (0.3*20)

    Excepted return = 42-6

    Excepted return=36cents

    To dollars, 1cents is 0.01dollars

    Then, 36cents = 0.36dollars

    Expected return=$0.36
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “In finance the notion of expected value is used to analyze investments for which the investor has an estimate of the chances associated ...” in 📗 Mathematics if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers