Mean or Expected Value and Standard Deviation · Exercise 25
A venture capitalist, willing to invest $1,000,000, has three investments to choose from: The first investment, a software company, has a 10 percent chance of returning $5,000,000 profit, a 30 percent chance of returning $1,000,000 profit, and a 60 percent chance of losing the million dollars. The second company, a hardware company, has a 20 percent chance of returning $3,000,000 profit, a 40 percent chance of returning $1,000,000 profit, and a 40 percent chance of losing the million dollars. The third company, a biotech firm, has a 10 percent chance of returning $6,000,000 profit, a 70 percent of no profit or loss, and a 20 percent chance of losing the million dollars.
(a) Construct a PDF for each investment.
(b) Find the expected value for each investment.
(c) Which is the safest investment? Why do you think so?
(d) Which is the riskiest investment? Why do you think so?
(e) Which investment has the highest expected return, on average?
OpenStax, Statistics · §4.2 Mean or Expected Value and Standard Deviation · Exercise 25
No hints for this one.
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