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A CD has a 5% chance of being a smash hit and profiting $5.2 million, a 50% chance of being a modest success and profiting $0.9 million, and a 45% chance of being a flop and breaking even. What is the expected earnings value of the CD?

Respuesta :

Abu99
P(S) = Probability of Smash = 0.05 (5%)
P(M) = Probability of Modest = 0.5 (50%)
P(F) = Probability of Flop = 0.45 (45%)
If I'm not mistaken, we should use the discrete random variable model,
so the expected earnings would be:
E(X) = (0.05 * 5.2) + (0.5 * 0.9) + (0.45 * 0)
= 0.26 + 0.45 + 0
= 0.71 Mill'

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