Question

A diamond merchant has a chance to buy one of 4 diamonds and wants to sell it immediately. One costs only $1000, but he has a 90% chance of getting $5000 for it (or not selling it at all). The second costs $10,000, and he has a 60% change of selling it for $25,000 (or not selling it at all). The third costs $20,000, but he has a 50% chance of selling it for $60,000 (or not selling it at all). The last diamond costs $50,000, but he has a 1% chance of selling it for $1,000,000 (or not selling it at all). Which diamond gives him the best expected value?

Answer 1

options are :

the one for $1000
the one for $10,000
the one for $20,000
the one for $50,000

Answer 2

First convert the percentages to decimals, for example 90% converts to a probability of 0.9.
Then multiply the profit by the probability to get the expected value.
Cost Profit Probability Expected Value
$1000 5000 - 1000 = $4000 0.9 $4000 * 0.9 = $3600

Now you can complete the table to find the correct choice of answer.

Answer 3

@shavu1 Are you there?

Answer 4

yes

Answer 5

wait what chart

Answer 6

@kropot72

Answer 7

I have put the details for the first diamond in the above table to show you the method. Now you need to put in the details for the other three diamonds.

Answer 8

am i looking for what expected value gives me 1mil

Answer 9

1.3600
2.9000
3.20000
4.95000

Answer 10

i calculated and this what i got for the last 3

Answer 11

i finished the chart

Answer 12

wouldnt the right answer be D it has the highest expected value

Answer 13

What was your calculated expected value for D?

Answer 14

95,000

Answer 15

Not correct. Check your calculation again.

Answer 16

shouldnt it be 1,000,000-50,000= 95,000 x .01

Answer 17

nvm D is 950

Answer 18

the best answer would be C since its 20,000

Answer 19

The calculation for D is : $950,000 * 0.01 = $9500

Answer 20

so its C

Answer 21

Yes, C gives the highest expected value.

Answer 22

THANKS :d

Answer 23

You're welcome :)