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.

Answer 1

Expected r = 0.17

Step-by-step explanation:

The expected return on the investment can be calculated by taking the return in each scenarios and multiplying it with the probability of that scenarios and taking the sum of the results. Thus, the equation to calculate expected return will be,

Expected r = pA * rA + pB * rB + ... + pN * rN

Where,

• pA, pB, ... represents the probability of each scenario A, B and so on

• rA, rB, ... represents the probability of each scenario A, B and so on

Expected r = 0.5 * 0.15 + 0.3 * 0.25 + 0.2 * 0.1

Expected r = 0.17