Asked by Ashley Fondeur on Jun 03, 2024
Verified
You can either invest in project A or B.Project A could have a value of $150 with a probability of 0.1 or a value of $75 with probability 0.9.Project B could have a value of $110 with probability 0.2 or a value of $65 with a probability of 0.8.Which project should you invest in?
A) Project A
B) Project B
C) Neither of the projects
D) You cannot tell from the information presented
Invest
Distributing financial resources with the aim of achieving financial gain or income.
Probability
A measure of the likelihood that an event will occur, often expressed as a number between 0 and 1.
- Assess and decide among several investment initiatives using expected value analysis.
Verified Answer
DV
DheerAj VeRma
Jun 07, 2024
Final Answer :
A
Explanation :
The expected value of Project A is (0.1 * $150) + (0.9 * $75) = $15 + $67.5 = $82.5. The expected value of Project B is (0.2 * $110) + (0.8 * $65) = $22 + $52 = $74. Therefore, Project A has a higher expected value.
Learning Objectives
- Assess and decide among several investment initiatives using expected value analysis.