Asked by Kaden Evans on Jul 17, 2024
Verified
An individual is indifferent between receiving a guaranteed amount of $1,000 and taking a chance of receiving $1,500 with probability 0.75 and losing $800 with probability 0.25.What is the expected value of this gamble?
A) $1,000
B) $740
C) $925
D) $650
Expected Value
The anticipated value of a variable, calculated as the sum of all possible values each multiplied by the probability of its occurrence.
Guaranteed Amount
A certain sum of money promised to an individual or entity under specific conditions or agreements.
Receiving
The process of accepting goods delivered by suppliers and checking them for order accuracy and quality.
- Ascertain and interpret the expected payoffs and expected values when faced with decision-making situations.
- Apply concepts of risk and return to evaluate investment decisions.
Verified Answer
Learning Objectives
- Ascertain and interpret the expected payoffs and expected values when faced with decision-making situations.
- Apply concepts of risk and return to evaluate investment decisions.
Related questions
The Old Adage, Don't Put All Your Eggs in One ...
The EVPI Represents the ____________________ Amount That a Decision Maker ...
{Power Company Narrative} What Is the Expected Value of Perfect ...
{Maintenance Company Narrative} What Is the Expected Payoff with Perfect ...
{Car Audio Store Narrative} What Is the Expected Value of ...