Copyright

Five of ten people earn $0, four earn $100, and one loses $100. What is the expected pay off and...

Question:

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:

Answer a)

Data -

Five of ten people earn $0, four earn $100, and one loses $100.

  • Probability 1 = 5 / 10
  • Earning 1 = $0

/

  • Probability 2 = 4 / 10
  • Ea...

See full answer below.

Become a Study.com member to unlock this answer! Create your account

View this answer

Learn more about this topic:

Loading...
Analyzing Business Problems Using Decision Trees & Payoff Tables

from Business 116: Quantitative Analysis

Chapter 5 / Lesson 5
4.2K

Related to this Question

Explore our homework questions and answers library