anonymous
  • anonymous
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?
Statistics
  • Stacey Warren - Expert brainly.com
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SOLVED
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chestercat
  • chestercat
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anonymous
  • anonymous
options are : the one for $1000 the one for $10,000 the one for $20,000 the one for $50,000
kropot72
  • kropot72
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.
kropot72
  • kropot72
@shavu1 Are you there?

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More answers

anonymous
  • anonymous
yes
anonymous
  • anonymous
wait what chart
anonymous
  • anonymous
@kropot72
kropot72
  • kropot72
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.
anonymous
  • anonymous
am i looking for what expected value gives me 1mil
anonymous
  • anonymous
1.3600 2.9000 3.20000 4.95000
anonymous
  • anonymous
i calculated and this what i got for the last 3
kropot72
  • kropot72
|dw:1442257433971:dw|
anonymous
  • anonymous
i finished the chart
anonymous
  • anonymous
wouldnt the right answer be D it has the highest expected value
kropot72
  • kropot72
What was your calculated expected value for D?
anonymous
  • anonymous
95,000
kropot72
  • kropot72
Not correct. Check your calculation again.
anonymous
  • anonymous
shouldnt it be 1,000,000-50,000= 95,000 x .01
anonymous
  • anonymous
nvm D is 950
anonymous
  • anonymous
the best answer would be C since its 20,000
kropot72
  • kropot72
The calculation for D is : $950,000 * 0.01 = $9500
anonymous
  • anonymous
so its C
kropot72
  • kropot72
Yes, C gives the highest expected value.
anonymous
  • anonymous
THANKS :d
kropot72
  • kropot72
You're welcome :)

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