Use the following to answer question:
-(Table: Income and Utility for Whitney)Use Table: Income and Utility for Whitney.Whitney's income next year is uncertain: there is a 40% probability she will make $40,000 and a 60% probability she will make $80,000.The expected value of Whitney's income is:
A)$64,000.
B)$80,000.
C)$40,000.
D)$56,000.

Question

Use the following to answer question: 
-(Table: Income and Utility for Whitney)Use Table: Income and Utility for Whitney.Whitney's income next year is uncertain: there is a 40% probability she will make $40,000 and a 60% probability she will make $80,000.The expected value of Whitney's income is:
A)$64,000. 
B)$80,000. 
C)$40,000. 
D)$56,000.

Quizplus · Accepted Answer

The expected value of Whitney's income can be calculated by taking the weighted average of the two possible incomes: (0.4 x $40,000) + (0.6 x $80,000) = $64,000. Therefore, the best choice for Whitney would be to plan for an expected income of $64,000.

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