For each of the following situations, calculate the expected value. a. Tanisha owns one share of IBM
Question:
a. Tanisha owns one share of IBM stock, which is currently trading at $80. There is a 50% chance that the share price will rise to $100 and a 50% chance that it will fall to $70. What is the expected value of the future share price?
b. Sharon buys a ticket in a small lottery. There is a probability of 0.7 that she will win nothing, of 0.2 that she will win $10, and of 0.1 that she will win $50. What is the expected value of Sharon's winnings?
c. Aaron is a farmer whose rice crop depends on the weather. If the weather is favorable, he will make a profit of $100. If the weather is unfavorable, he will make a profit of −$20 (that is, he will lose money). The weather forecast reports that the probability of weather being favorable is 0.9 and the probability of weather being unfavorable is 0.1. What is the expected value of Aaron's profit?
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a The expected value of the share price is 0...View the full answer
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