CMA Foundation · Fundamentals of Business Mathematics and Statistics · Probability
Ramesh Traders in Surat launches a product. Profit is Rs 50,000 with probability 0.3, Rs 20,000 with probability 0.5, and a loss of Rs 30,000 with probability 0.2. What is the expected profit?
The expected profit is Rs 19,000. Weight each outcome by its probability: 15,000 from the Rs 50,000 profit, 10,000 from the Rs 20,000 profit, and minus 6,000 from the Rs 30,000 loss. Summing gives 19,000, with the loss treated as negative.
- ARs 19,000Correct
- BRs 21,000
- CRs 25,000
- DRs 40,000
Explanation
E = 50,000(0.3) + 20,000(0.5) + (-30,000)(0.2) = 15,000 + 10,000 - 6,000 = 19,000. Option Rs 25,000 comes from adding the loss instead of subtracting it (15,000+10,000+6,000 = 31,000 is not it, but ignoring the sign gives a wrong figure). The loss must carry a negative sign.
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