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2 April, 14:43

You can either invest in Project A or B. Project A could have a value of $150 with a probability of 0.1 or a value of $75 with a probability of 0.9. Project B could have a value of $110 with a probability of 0.2 or a value of $65 with a probability of 0.8. Which project should you invest in

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  1. 2 April, 17:36
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    I will invest in Project A, as its Expected value is higher than the project B.

    Explanation:

    Project A

    Return Probability Expected Value

    $150 0.1 $150 x 0.1 = $15

    $75 0.9 $75 x 0.9 = $67.5

    Total Expected Value = $15 + $67.5 = $82.5

    Project B

    Return Probability Expected Value

    $110 0.2 $110 x 0.2 = $22

    $65 0.8 $65 x 0.8 = $52

    Total Expected Value = $22 + $52 = $74

    The Expected return of Project A is higher, I will invest in the Project A.
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