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Math Help - Expected Return

  1. #1
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    Post Expected Return

    Dear Forum , I am having problems with the following :
    After careful testing and analysis an oil company is considering drilling in two different sites. It is estimated that site A will net $30 million if successful (probability .2) and will lose $3 million if it is not (probability .8). Site B will net $70 million if successful (probability .1) and lose $4 million if not (probability .9). Which site should the company choose according to the expected return from each site?

    Thanks , -AC-
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  2. #2
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    Quote Originally Posted by AlgebraicallyChallenged View Post
    Dear Forum , I am having problems with the following :
    After careful testing and analysis an oil company is considering drilling in two different sites. It is estimated that site A will net $30 million if successful (probability .2) and will lose $3 million if it is not (probability .8). Site B will net $70 million if successful (probability .1) and lose $4 million if not (probability .9). Which site should the company choose according to the expected return from each site?

    Thanks , -AC-
    A: Expected return = (30)(0.2) + (-3)(0.8) = $3.6 million.
    B: Similar calculation to above.
    Now make the comparison.
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