Question

Calculate the expected value of the scenario.xP(x;)- $1.250.1- $0.250.4$00.2$1.250.3 (Expected value = $ “ANSWER”)

Answer 1

The Expected Value of a Discrete Probability Distribution

Given a number of events:

x = {x1, x2, x3,..., xn}

And their respective probabilities:

P = {p1, p2, p3,..., pn}

The expected value is calculated as follows:

$Ex=\sum ^{i=n}_{i=1}x_i\cdot p_i$

We are given:

x = {-1.25, -0.25, 0, 1.25}

P = {0.1, 0.4, 0.2, 0.3}

Substituting:

$Ex=(-1.25)\cdot0.1+(-0.25)\cdot0.4+(0)\cdot0.2+(1.25)\cdot0.3$

Calculating:

$\begin{gathered} Ex=-0.125-0.1+0+0.375 \\ Ex=0.15 \end{gathered}$

The expected value is $0.15