Question

As the operations manager for American Airlines you have decided to invest in 10 new jets for the company's fleet. There are three outcomes for this investment. What is the expected return on investment using the information below?

Outcome Probability Return

1. .50 .15

2. .30 .25

3. .20 .10


Make sure your answer is in decimal format (.30, .40, etc.) and not a percentage. Round to the nearest hundredth place (i.e. .264 -> .26) if necessary.
.17

Answer 1

0.17

Step-by-step explanation:

The computation of the expected return on investment is shown below:

= (Expected return of the outcome 1 × Probability of the outcome 1) + (Expected return of the outcome 1 × Probability of the outcome 1) + (Expected return of the outcome 1 × Probability of the outcome 1)

= (0.15× 0.50) + (0.25 × 0.30) + (0.10 × 0.20)

= 0.075 + 0.075 + 0.02

= 0.17