Based on her market research, she has determined that there isa 0.6 probability

Question

Based on her market research, she has determined that there isa 0.6 probability of making a $20,000 profit, and a 0.4 probabilityof a $25,000 loss. She computes the expected value to be$2000. Can someone give me a detail example that would be simimlar tothese question. Based on her market research, she has determined that there isa 0.6 probability of making a $20,000 profit, and a 0.4 probabilityof a $25,000 loss. She computes the expected value to be$2000. Can someone give me a detail example that would be simimlar tothese question.

Explanation / Answer

probability of making profit, =  0.6 (and valueassociated with this profit = $20,000 ) hence expected value if profit is made =  0.6 x$20,000 = $12,000
probability of making loss= 0.4 (and value associated withthis loss = $25,000) hence expected value if loss is made =  0.4 x$25,000 = $10,000 expected value from above = $12,000 -  $10,000=  $2,000

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