2. A woman is given the option to put $2000 into an investment. The financial ad

Question

2. A woman is given the option to put $2000 into an investment. The financial advisor tells her that there is a 20% chance she will double her money, a 30% chance she will break even, a 35% chance that she will lose $1000, and a 15% chance she will lose her entire investment. Find the expected value for this investment. Would it be a wise strategy to invest in options such as this over the long term?

2. A woman is given the option to put $2000 into an investment. The financial advisor tells her that there is a 20% chance she will double her money, a 30% chance she will break even, a 35% chance that she will lose $1000, and a 15% chance she will lose her entire investment. Find the expected value for this investment. Would it be a wise strategy to invest in options such as this over the long term?

2. A woman is given the option to put $2000 into an investment. The financial advisor tells her that there is a 20% chance she will double her money, a 30% chance she will break even, a 35% chance that she will lose $1000, and a 15% chance she will lose her entire investment. Find the expected value for this investment. Would it be a wise strategy to invest in options such as this over the long term?

Explanation / Answer

This is good strategy for long run as you are getting double the investment.

X p(X) 2 0.2 1 0.3 -0.5 0.35 0 0.15 E(X)= 0.525 (0.2*2)+(0.3*1)+0.35*(-0.5))+(0.15*0)

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