PRC-2 · Chapter 11 · Question 37 of 60
An investor evaluates a stock with a 20% chance of yielding a Rs. 100,000 profit and an 80% chance of yielding exactly Rs. 0. What is the mathematical 'Expected Value' of this investment?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Rs. 20,000
Explanation
Expected Value is calculated by multiplying each outcome by its respective probability and summing them. (0.20 * 100,000) + (0.80 * 0) = 20,000 + 0 = Rs. 20,000.
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