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An investment worth $50,000 has these expectations of returns: 30% chance of ending up worth $40,000 50% chance of ending up worth $50,100 20% chance of ending up worth $65,000 Determine the expected value and risk. The expected value of the investment is $. The investment is risky because it has only a % chance of making a significant return.

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anthougo

1. The expected value of the investment is $50,000.

2. The investment is risky because it has only a 0.1% chance of making a significant return.

Data and Calculations:

Investment's worth = $50,000

Expected value

Probability        Investment Worth       Expected Value

30%                      $40,000                     $12,000 ($40,000 x 30%)

50%                      $50,100                     $25,050 ($50,100 x 50%)

20%                      $65,000                    $13,000 ($65,000 x 20%)

Expected Value of the investment =  $50,050

Return on investment = $50 ($50,050 - $50,000)

Probability of return = 0.1% ($50/$50,000 x 100)

Learn more: https://brainly.com/question/25546968

fichoh

The expected value of an investment is the cummulative sum of the investment worth and its corresponding probability. Hence, the expected value is $50,050 and it is risky.

The expected value of the investment can be calculated thus ;

  • E(X) = [ΣX*P(X)]

  • X __ 40000 ____ 50100 _____ 65000
  • P(X) _ 0.30 _____ 0.50 _______ 0.20

Hence x we'll have ;

E(X) = [(40000 × 0.3) + (50100 × 0.5) + (65000 × 0.2)]

E(X) = 12000 + 25,050 + 13000

E(X) = 50,050

Probability of return :

  • Return = 50,050 - 50000 = $50

[tex]\frac{return}{investment \: amount} \times 100[/tex]%

[tex]\frac{50}{50000} \times 100[/tex]% = 0.1%

Hence, the investment is risky as it has a very low probability of yielding a significant return.

Learn more : https://brainly.com/question/25700080

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