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Expected Value

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After careful testing and analysis, an oil company is considering drilling in two different sites. It is estimated that site A will net $20 million if successful (probability .4) and lose $3 million if not (probability .6); site B will net $70 million if successful (probability .3) and lose $5 million if not (probability .7). Which site should the company choose according to the expected return from each site?

A. What is the expected return for site A? ___Million
B. What is the expected return for site B? ___Million

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Solution Summary

Probability distribution is assessed in this solution.

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In a discrete instance like this we can just take the probability of succeeding and multiply that by the expected amount of ...

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