# Thread: Evaluating Investments

1. ## Evaluating Investments

An investor plans to put $50000 in one of four investments. The return on each investment depends on whether next year's economy is strong or weak. The following table summarizes the possible payoffs, in dollars for the four investments: Next Years Economy strong weak CD 6000 6000 Office 15,000 5000 Land 33,000 -17,000 Tech School 5500 10,000 Let V, W, X, and Y denote the payoffs for the CD, office complex, land speculation, and tech school respectively. Then V, W, X, and Y are random variables. Assume that next year's economy has a 40% chance of being strong and a 60% chance of being weak. a. Find the probability distribution of each random variable V, W, X, and Y b. Determine the expected value of each random variable. 2. Originally Posted by sjenkins An investor plans to put$50000 in one of four investments. The return on each investment depends on whether next year's economy is strong or weak. The following table summarizes the possible payoffs, in dollars for the four investments:

Next Years Economy
strong weak
CD 6000 6000
Office 15,000 5000
Land 33,000 -17,000
Tech School 5500 10,000

Let V, W, X, and Y denote the payoffs for the CD, office complex, land speculation, and tech school respectively. Then V, W, X, and Y are random variables. Assume that next year's economy has a 40% chance of being strong and a 60% chance of being weak.

a. Find the probability distribution of each random variable V, W, X, and Y
b. Determine the expected value of each random variable.
Office distribution: Pr(W = 15,000) = 0.4, Pr(W = 5000) = 0.6.

The others are treated in the same way.

E(W) = (0.4)(15,000) + (0.6)(5000) = ......

The others are treated in the same way.