Five of ten people earn $0, four earn $100, and one loses $100. What is the expected pay off and variance of the pay off? 4.2 There is a 50 percent chance of making $0, a 40 percent chance of making $100, and a 10 percent chance of losing $100. Calculate the expected value and variance of the payoff. How does your estimate compare to the previous problem?
Expected Payoff Analysis:
Expected pay off is the average earnings over a trial period, and is calculated by adding the individual probability multiplied by each individual expected return. Over a period of time, the earnings average out to an expected pay off.
Answer and Explanation:
Five of ten people earn $0, four earn $100, and one loses $100.
- Probability 1 = 5 / 10
- Earning 1 = $0
- Probability 2 = 4 / 10
See full answer below.
Become a member and unlock all Study Answers
Try it risk-free for 30 daysTry it risk-free
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
from Business 116: Quantitative AnalysisChapter 5 / Lesson 5