A chance node on a decision tree has four possible outcomes each worth $100,000. The probabilities...
A chance node on a decision tree has four possible outcomes each worth $100,000. The probabilities of the outcomes occurring are assessed as 10%, 27%, 43% and 20%. What is the expected value of this chance node?
Homework Answers
Let the outcomes be denoted by Ei
E1 = $100000
E2 = $100000
E3 = $100000
E4 = $100000
Let the probabilities be denoted by Pi
P1 = 0.10
P2 = 0.27
P3 = 0.43
P4 = 0.20
Expected Value = P1E1 + P2E2 + P3E3 + P4E4
= 0.10*100000 + 0.27*100000 + 0.43*100000 + 0.20*100000
= $100000
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