# 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...

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#### Learn more about this topic:

from Business 116: Quantitative Analysis

Chapter 5 / Lesson 5