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CA Foundation · Quantitative Aptitude · Probability

Ravi estimates that a venture will give a profit of Rs 50,000 with probability 0.3, a profit of Rs 20,000 with probability 0.5, and a loss of Rs 30,000 with probability 0.2. What is his expected profit?

The expected profit is Rs 19,000. Multiply each outcome by its probability: 15,000 from the first, 10,000 from the second and minus 6,000 from the loss. Adding these weighted amounts gives Rs 19,000, because the loss must be subtracted.

  1. ARs 19,000Correct
  2. BRs 25,000
  3. CRs 13,333
  4. DRs 31,000

Explanation

Expected profit = 50,000 x 0.3 + 20,000 x 0.5 + (-30,000) x 0.2 = 15,000 + 10,000 - 6,000 = Rs 19,000. Rs 25,000 ignores the loss, and Rs 13,333 is the unweighted average of the three outcomes, which ignores the probabilities.

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