The probabilities are 0.22, 0.36, 0.28, and 0.14 that an investor will be able t
ID: 3439300 • Letter: T
Question
The probabilities are 0.22, 0.36, 0.28, and 0.14 that an investor will be able to sell a piece of property at a profit of $2,500, at a profit of $1,500, at a profit of $500, or at a loss of $500, respectively.
A) Let X the profit for each sell. Construct a table that has the level of X and the corresponding probability, i.e., the probability distribution.
B) Construct a table for F(X).
C) What is the investor's expected profit?
D) What is the probability that the investor's profit is greater than $500?
Explanation / Answer
A)
X ......2500.......1500........500.........-500
P(x)....0.22........0.36........0.28........0.14
B)
F(x),,,,,,0.22.......0.58........0.86........1
where F(x) is the cumulative probability
C)
expected profit = sum[ X * P(X)]
= 0.22 * 2500 + 0.36 * 1500 + 0.28 * 500 + 0.14 * -500
= 1160
D)
P(X>500) = P(X=1500) + P(X=2500)
= 0.22 + 0.36
= 0.58
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