If in an investment, a man can make profit of 5,000 with probability of 0.8 or loss 1,000 with probability of 0.2, what is the expected profit of the man?
To calculate the expected profit, you need to multiply the potential profits or losses by their respective probabilities and then sum up the results. In this case, the man has a probability of earning a profit of $5,000 with a probability of 0.8, and a probability of incurring a loss of $1,000 with a probability of 0.2.
To calculate the expected profit, you can use the formula:
Expected profit = (Profit1 * Probability1) + (Profit2 * Probability2) + ...
Where:
- Profit1 and Profit2 are the potential profits or losses
- Probability1 and Probability2 are the corresponding probabilities
In this case, the expected profit can be calculated as follows:
Expected profit = (5000 * 0.8) + (-1000 * 0.2)
Calculating this equation, we get:
Expected profit = 4000 + (-200)
Therefore, the expected profit for the man is $3,800.