Creating a discrete probability distribution: A venture capitalist, willing to invest $1,000,000, has three investments to choose from.
The first investment, a social media company, has a 20% chance of returning $7,000,000 profit, a 30% chance of returning no profit, and a 50% chance of losing the million dollars.
The second company, an advertising firm has a 10% chance of returning $3,000,000 profit, a 60% chance of returning a $2,000,000 profit, and a 30% chance of losing the million dollars.
The third company, a chemical company has a 40% chance of returning $3,000,000 profit, a 50% chance of no profit, and a 10% chance of losing the million dollars.
a. Construct a Probability Distribution for each investment. This should be 3 separate tables (See the instructors video for how this is done) In your table the X column is the net amount of profit/loss for the venture capitalist and the P(X) column uses the decimal form of the likelihoods given above.
b. Find the expected value for each investment.
c. Which investment has the highest expected return?
d. Which is the safest investment and why?
e. Which is the riskiest investment and why?