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Expected value of the payoff

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Suppose you make a $2,000 investment in a risky venture. There is a 60% chance that the payoff from the investment will be $5,000, a 15% chance that you will just get your money back, and a 25% chance that you will receive nothing at all from your investment.

a. Find the expected value of the payoff from your investment of $2,000.

b. Find the expected value of the net profit from your investment of $2,000.

c. If you invest $6,000 in the risky venture instead of $2,000, and the possible payoffs triple accordingly, what will be the expected value of the net profit from the $6,000 investment?

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Solution Summary

This provides the expected value of the payoff

$2.19
See Also This Related BrainMass Solution

Payoff Problem/Expected Value Decision Alternatives

A Las Vegas roulette wheel had 38 different numerical values. If an individual bets on one number and wins, the payoff is 35 to 1.

the pay off table for a 10 dollar bet on one number for decision alternatives of bet and do not bet is shown in this payoff table

win loose
bet 350 -10
do not bet 0 0

A)what is the recommended decision using the expected value approach?

B) What range of utility values would a decision maker have to assign to the $0 payoff in order to have expected utility justify a decision to place the $10 bet

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