An investor has a choice of 2 investment opportunities The f

An investor has a choice of 2 investment opportunities. The first investment yields a gain of $2600 with probability of 0.43, a gain of $1300 with probability of 0.27, and otherwise a loss of $1000. Investment #2 yields a gain of $2000 with probability of .2, $400 with a probability of .7, and a loss of $1000 with a probability of 0.1. What is the expected dollar gain or loss of investment #1?

Solution

              Let us tabulate the data with - sign for loss and calculate mean return for both investments

           Expected return= 1169 for invt I and 1980 for invt II

Under the same conditions investment II shows more return.

Expected return= 1169 for invt I