CIMA BA2 · Chapter 9 · Question 2 of 11
A project could produce a profit of $40,000 (probability 0.3), a profit of $25,000 (probability 0.5) or a loss of $10,000 (probability 0.2). What is the expected value of the project's profit?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $22,500
Explanation
Expected value = sum of (outcome x probability) = ($40,000 x 0.3) + ($25,000 x 0.5) + (-$10,000 x 0.2) = $12,000 + $12,500 - $2,000 = $22,500.
More Risk and uncertainty in decision making MCQs
- Q4Which of the following is a limitation of using EXPECTED VALUES to make decisions?
- Q5A manager prefers an investment with a certain return of $50,000 to an alternative offering an equal chance of $0 or $110,000. What is the…
- Q6The weekly demand for a product is normally distributed with a mean of 500 units and a standard deviation of 40 units. What is the…
- Q7The weekly demand for a product is normally distributed with a mean of 500 units and a standard deviation of 40 units. What is the…
- Q8Two machines operate independently. The probability that machine 1 breaks down in a week is 0.10 and the probability that machine 2 breaks…