Question

an investor has an opportunity to invest in three companies. she researched each company and collected the information in the table below. which company would provide the best investment?
probability of profit and loss by company
company | loss, probability of loss | probability to break even | profit, probability of profit
a | $24,000, 16% | 50% | $10,000, 34%
b | $12,000, 32% | 40% | $21,000, 28%
c | $6,000, 23% | 17% | $5,000, 60%
○ company a
○ company b
○ company c
○ all companies have a probability of loss.

Explanation:

Step1: Calculate expected value for Company A

$\text{Expected Value}_A = (-\$24,000 \times 0.16) + (\$0 \times 0.50) + (\$10,000 \times 0.34)$
$\text{Expected Value}_A = -\$3,840 + \$0 + \$3,400 = -\$440$

Step2: Calculate expected value for Company B

$\text{Expected Value}_B = (-\$12,000 \times 0.32) + (\$0 \times 0.40) + (\$21,000 \times 0.28)$
$\text{Expected Value}_B = -\$3,840 + \$0 + \$5,880 = \$2,040$

Step3: Calculate expected value for Company C

$\text{Expected Value}_C = (-\$6,000 \times 0.23) + (\$0 \times 0.17) + (\$5,000 \times 0.60)$
$\text{Expected Value}_C = -\$1,380 + \$0 + \$3,000 = \$1,620$

Step4: Compare expected values

Compare $-\$440$, $\$2,040$, and $\$1,620$. The highest positive expected value indicates the best investment.

Answer:

B. company B