Aspeculative investment is one in which there is a high of l

Aspeculative investment is one in which there is a high of loss. if you invest $1000, you have a 40% chance of losing all your money. However, you have an equal chance of the following events: breaking even (no gain or loss), gaining $5000, or gaining $10000

a) What is the expected value of the investment?? (Make a table first)

b) Explain what that number means in this context?

Solution

a)The expected value is:

0.4*0+0.2*1000+0.2*(1000+5000)+0.2*(1000+10000)

=$3600

b)The above number means the most probable outcome.