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Estimated return for investment

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An entrepreneur is faced with two investment opportunities that each require an initial outlay of $10,000. The estimated return for investment x will be either 40,000, 20,000, or 0 with respective probabilities of 0.25, 0.5, and 0.25. The estimated return for investment y will be either 30,000, 20,000, or 10,000 with probabilities of 1/3 for each.

  1. a) Calculate E[x] and E[y]
  2. b) Check your calculations in a) by first dividing each value of x and y by 10,000 then calculating the mean of the two new sets of numbers, and finally determining E[x] and E[y] by multiplying the results by 10,000
  3. c) Calculate V(x) and V(y). Try to check your answer by again dividing by 10,000. What is the relationship between V(x) and V(x/10000) and V(x)/10000?

Reference no: EM131703005

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