) Returns on a certain business venture, to the nearest $1,000, are known to follow the following probability distribution X P(x) -2,000 0.1 -1,000 0.1 0 0.2 1000 0.2 2000 0.3 3000 0.1
Answers
Given : Returns on a certain business venture, to the nearest $1,000, are known to follow the following probability distribution
X P(x)
-2,000 0.1
-1,000 0.1
0 0.2
1000 0.2
2000 0.3
3000 0.1
To Find : most likely monetary outcome of the business venture
is the venture likely to be successful
what is the long-term average earning of business ventures of this kind
Solution:
most likely monetary outcome of the business venture is 2000 $
as it has maximum probability = 0.3
E(X) P(x) E(X)P(X)
-2,000 0.1 -200
-1,000 0.1 -100
0 0.2 0
1000 0.2 200
2000 0.3 600
3000 0.1 300
800
Expected value = ∑E(X)P(X) = 800
long-term average earning of business ventures = 800 $
venture is likely to be successful as Expected value is + ve = 800 $
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