Question

Tiffany Ham's business is thriving in Houston, TX. To reward her team, Tiffany is implementing a performance incentive program. Annual Bonuses begin at $5,000 for excellent performance, $3,000 for good performance, and $1,500 for fair performance, and $0 for poor performance. The probability levels are 0.15, 0.40, 0.25, and 0.20, respectively. What is the expected value of the annual bonus amount for an employee?

Multiple Choice
a. $1,875
b. $2,300
c. $2,325
d. $2,375

Answer 1

Expected Value = ($5,000 * 0.35) + ($3,000 * 0.30) + ($1,500 * 0.15) + ($0 * 0.05)

Calculating this expression will give us the expected value of the annual bonus amount.
Let’s evaluate it :

Expected Value = ($1,750) + ($900) + ($225) + ($0) = $2,875

Therefore the expected value of the annual bonus amount for an employee is $2,875