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Claire is considering investing in a new business. In the first year, there is a probability of 0.2 that the new business will lose $10,000, a probability of 0.4 that the new business will break even ($0 loss or gain), a probability of 0.3 that the new business will make $5,000 in profits, and a probability of 0.1 that the new business will make $8,000 in profits.

Claire should invest in the company if she makes a profit. Should she invest? Explain using expected values.









If Claire’s initial investment is $1,200 and the expected value for the new business stays constant, how many years will it take for her to earn back her initial investment?

Respuesta :

Claire should invest. This is because she would earn a profit of $300.

The number of years it would take to recover the amount invested is 4 years.

Should Claire invest?

The decision to invest or not can be determined by calculating the expected value of the investment. The expected value is the expected profit multiplied by the probabilities.

Expected value = (0.2 x $-10,000) + ( 0.4 x 0) + (0.3 x 5000) + (0.1 x 8000)

-2000 + 1500 + 800 = 300

Years it would take to recover the initial investment = 1200 / 300 = 4 years

To learn more about profit, please check: https://brainly.com/question/26181966

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