Question

please help answer this by 10 thank you

Let us suppose you can put your money into a savings account and earn $500 in two years. Alternatively, you could put your money into a risky investment or into a more conservative investment. For the risky investment if the economy is good, will profit you $2000, but during a bad year, you would lose $500. For the conservative investment if the economy is good, will profit you $1000, but if the economy is bad, you will lose $300. Assume that the probability of a good year is 36%. What is the expected value of the risky investment?

Answer 1

Expected value of an investment = (probability of good return * Expected good return) + (probability of bad return * bad return)

So the expected return value for the given case of risky investment:

=36% * 2000 + (1-36%)*(-500)

= $ 400