A community for students.

Here's the question you clicked on:

55 members online
  • 0 replying
  • 0 viewing

anonymous

  • one year ago

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?

  • This Question is Closed
  1. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    options are : the one for $1000 the one for $10,000 the one for $20,000 the one for $50,000

  2. kropot72
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    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.

  3. kropot72
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    @shavu1 Are you there?

  4. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    yes

  5. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    wait what chart

  6. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    @kropot72

  7. kropot72
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    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.

  8. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    am i looking for what expected value gives me 1mil

  9. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    1.3600 2.9000 3.20000 4.95000

  10. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    i calculated and this what i got for the last 3

  11. kropot72
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    |dw:1442257433971:dw|

  12. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    i finished the chart

  13. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

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

  14. kropot72
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    What was your calculated expected value for D?

  15. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    95,000

  16. kropot72
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    Not correct. Check your calculation again.

  17. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

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

  18. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    nvm D is 950

  19. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    the best answer would be C since its 20,000

  20. kropot72
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

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

  21. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    so its C

  22. kropot72
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    Yes, C gives the highest expected value.

  23. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    THANKS :d

  24. kropot72
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    You're welcome :)

  25. Not the answer you are looking for?
    Search for more explanations.

    • Attachments:

Ask your own question

Sign Up
Find more explanations on OpenStudy
Privacy Policy

Your question is ready. Sign up for free to start getting answers.

spraguer (Moderator)
5 → View Detailed Profile

is replying to Can someone tell me what button the professor is hitting...

23

  • Teamwork 19 Teammate
  • Problem Solving 19 Hero
  • You have blocked this person.
  • ✔ You're a fan Checking fan status...

Thanks for being so helpful in mathematics. If you are getting quality help, make sure you spread the word about OpenStudy.

This is the testimonial you wrote.
You haven't written a testimonial for Owlfred.