00:01
All right, in your question, you're looking at investment options.
00:03
You have three options to choose from, money market, bonds, or stocks.
00:07
Pe represents poor economy.
00:09
Ge represents a good economy, and the expected outcomes for each of those economies are given for each option.
00:18
The probability of a poor economy is 0 .4, which means the probability of a good economy would be 0 .6.
00:25
And it says to use the expected profit or expected value approach to determine which is, these would give you the best outcome for the best decision.
00:35
So all we have to do is take the probability of a poor economy times the payout on a poor economy for each scenario and add that to the probability of a good economy times the payout for a good economy for each scenario.
00:54
Now honestly, i can already tell that money markets is going to be the best because both numbers are larger, well, i think it's going to be the best.
01:04
Maybe i shouldn't have said that.
01:05
Let's just verify it to finish it.
01:08
So 0 .4 times 2 ,300 plus 0 .6 times 3 ,600 is 3 ,080.
01:21
So the expected profit for money market would be $3 ,080...