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Probability

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There are three investment plans for your consideration. Each plan calls for an investment of $25,000 and the return will be one year later. Plan A will return $27,500. Plan B will return $27,000 or $28,000 with probabilities of 0.4 and 0.6, respectively. Plan C will return $24,000, $27,000, or $33,000 with probabilities of 0.2, 0.5, and 0.3, respectively. If your objective is to maximize the expected return, which plan should you choose?

  • Probability -

    27*.4 + 28*.6 = 27.6 (better than Plan A)
    24*.2 + 27*.5 + 33* .3 = 28.2 (best of all)

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