Question

By investing in a particular stock , a person can make a profit in one year of $4000 with probability 0.3 or take a loss of $1000 with the probability 0.7. What is this person's expected gain?

Answer 1

Answer:

3000

Step-by-step explanation:

the person has expired 4000 on the probability of 0.3 .

then he accept loss of 1000 on the probability of 0.7.

so only the gain.

4000-1000

gain of RPS.3000

Answer 2

Given,

Profit of $4000 with probability = 0.3

Loss of $1000 with probability = 0.7

To Find,

Person's expected gain =?

Solution,

Sum of probability = 0.3 + 0.7 = 1

From Kolmorogov's second axiom, we get

E [X] = 0.3 * 4000 + 0.7 * (-1000) [Loss will be negative]

E [X] = 1200 - 700

E [X] = $500

Hence, the person's expected gain is $500 .