Which of the Following Chances Has the Biggest Expected Return

question 181

Multiple Choice

Which of the following chances has the biggest expected return?

• A) a 100% chance of getting $1,000
• B) a 50% chance of winning $2,000 and a 50% chance of winning $0
• C) a 50% chance of winning $2,000, 25% chance of winning $4,000 and a 25% chance of losing $4,000
• D) All of the above have the same expected return.

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Definitions:

Reasonably Possible

A term used in accounting and finance to denote outcomes that are more than a remote possibility but less likely than probable.

Estimable

Capable of being estimated or approximately calculated.

Note Discounted

A financial term referring to a promissory note that is sold for less than its face value before it reaches maturity.

Interest Calculations

The process of figuring out the amount of interest to be added to the principal amount of a loan or deposit, based on the rate and the time.