Question

3. The probability that a Wall Street stock market investor will sell his stocks at a profit of $7000 is 0.19, the probability to sell at a profit of $4000 is 0.38, the probability to break even is 0.32 and the probability that he will sell at a loss of $5000 is 0.11. What is his expected profit? 4. A small company must decide whether to merge with a larger company to make more investments. If they merge and it is a good sales year, there will be a $840,000 profit; if they merge and it is a poor sales year, there will be a deficit of $ 260,000. If they do not merge and it is a good sales year there will be a $480,000 profit; if they do not merge and it is a poor sales year there will be a $52,000 profit. If the probability of a good sales year is 0.30 and the probability of a poor sales year is 0.70, what is the expected profit? 5. A coin is tossed 431 times. Use Binomial Distribution to approximate the probability of getting at most 235 tails.

Answer 1

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3.

The expected profit is basically the probability weighted profit for each scenario.

So, that' :

E(x)
= $7000*.19 + $4000*.38 + $0*.32 + (-$5000)*.11
= $2300

Answer: Expected profit = $2300