8. An investment counselor calls with a hot stock tip. He believes that if the e

Question

8. An investment counselor calls with a hot stock tip. He believes that if the economy remains strong, the investment will result in a profit of $40,000. If the economy grows at a moderate pace, the investment will result in a profit of $10,000. However, if the economy goes into recession, the investment will result in a loss of $40,000. You contact an economist who believes there is a 30% probability the economy will remain strong, a 60% probability the economy will grow at a moderate pace, and a 10% probability the economy will slip into recession. What is the expected profit from this investment?

The expected profit is __?___ (Type an integer or a decimal.)

9. In the game of roulette, a player can place a $9 bet on the number 7 and have a 1/38 probability of winning. If the metal ball lands on 7, the player gets to keep the $9 paid to play the game and the player is awarded an additional $315. Otherwise, the player is awarded nothing and the casino takes the player's $9. What is the expected value of the game to the player? If you played the game 1000 times, how much would you expect to lose?

The expected value is __?__ (Round to the nearest cent as needed.)

The player would expect to lose about __?___ (Round to the nearest cent as needed.)

Explanation / Answer

Solution:-

8) E(profit) = (10000)(30%) + (40000)(60%) + (-10000)(10%) = $26000

9)  E(x) = 315(1/38) + (-9)(37/38) = -0.47

  The expected value is  -0.47

=> 1000 * -0.4736 = -473.6

  The player would expect to lose about 473.6

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