an investor has an opportunity to invest in three companies. she researched each company and collected the…

an investor has an opportunity to invest in three companies. she researched each company and collected the information in the table below. which company would provide the best investment?\n\nprobability of profit and loss by company\n| company | loss, probability of loss | probability to break even | profit, probability of profit |\n| ---- | ---- | ---- | ---- |\n| a | $24,000, 16% | 50% | $10,000, 34% |\n| b | $12,000, 32% | 40% | $21,000, 28% |\n| c | $6,000, 23% | 17% | $5,000, 60% |\n\ncompany a\ncompany b\ncompany c\nall companies have a probability of loss.

an investor has an opportunity to invest in three companies. she researched each company and collected the information in the table below. which company would provide the best investment?\n\nprobability of profit and loss by company\n| company | loss, probability of loss | probability to break even | profit, probability of profit |\n| ---- | ---- | ---- | ---- |\n| a | $24,000, 16% | 50% | $10,000, 34% |\n| b | $12,000, 32% | 40% | $21,000, 28% |\n| c | $6,000, 23% | 17% | $5,000, 60% |\n\ncompany a\ncompany b\ncompany c\nall companies have a probability of loss.

Answer

Explanation:

Step1: Calculate expected value for company A

$E(A)=(- 24000)\times0.16 + 0\times0.5+10000\times0.34=-3840 + 0+3400=-440$

Step2: Calculate expected value for company B

$E(B)=(-12000)\times0.32 + 0\times0.4+21000\times0.28=-3840+0 + 5880 = 2040$

Step3: Calculate expected value for company C

$E(C)=(-6000)\times0.23+0\times0.17 + 5000\times0.6=-1380+0+3000 = 1620$

Step4: Compare expected values

Since $2040>1620>-440$, company B has the highest expected value.

Answer:

company B