In a proposed business venture, a businesswoman estimates there is a 70 % chance she will make $54 comma 000 and a 30 % chance she will lose $59 comma 000. Determine her expected value.

Her Expected value is $55,500

Explanation:

Expected value can be calculated by multiplying the estimated returns with the given probabilities. Total Expected value is the total sum of expected returns from each option.

Use following formula for each option

E = x1p1 + x2p2

Where

x1 = $54,000

p1 = 70%

x2 = $59,000

p2 = 30%

E = (54,000 x 70%) + (59,000 x 30%) = $55,500

Table

Returns Probability Expected value

$54,000 70% $37,800

$59,000 30% $17,700

Total Expected Value $55,500