type the correct answer in the box. use numerals instead of words. what is the expected value of a stock…

type the correct answer in the box. use numerals instead of words. what is the expected value of a stock investment of $20,000 that has a 25% chance of decreasing to a value of $18,000, a 25% chance of maintaining a value of $20,000, and a 50% chance of increasing to a value of $25,500? the expected value of this stock investment is $

type the correct answer in the box. use numerals instead of words. what is the expected value of a stock investment of $20,000 that has a 25% chance of decreasing to a value of $18,000, a 25% chance of maintaining a value of $20,000, and a 50% chance of increasing to a value of $25,500? the expected value of this stock investment is $

Answer

Explanation:

Step1: Recall expected - value formula

The formula for expected value $E(X)=\sum_{i}p_ix_i$, where $p_i$ is the probability of the $i$-th outcome and $x_i$ is the value of the $i$-th outcome.

Step2: Identify probabilities and values

We have $p_1 = 0.25$, $x_1=18000$; $p_2 = 0.25$, $x_2 = 20000$; $p_3=0.5$, $x_3 = 25500$.

Step3: Calculate expected value

$E(X)=0.25\times18000 + 0.25\times20000+0.5\times25500$ $E(X)=4500 + 5000+12750$ $E(X)=22250$

Answer:

22250