SOURCE: Expected returns: You have chosen biology as your
So expected returns are just a little more advanced version of probability - without getting too in detail it uses weighted averages so you do not have to add the same number 17 times.
Let's first define our variables:
E(X) = Expected Return
X1 = Variable 1
P1 = Probability 1 (in decimal format so 55% would be .55)
X2 = Variable 2
P2 = Probability 2 (P2 is also equal to 1 - P1)
So the expected return formula is as follows:
E(X) = (X1)*(P1) + (X2)*(P2)
Plugging in our given numbers we get
E(X) = Expected Return
X1 = 300,000
P1 = 10% or .1
X2 = 40,000
P2 = 1 - P1 = 1 - .1 = .9
E(X) = (300,000)*(.1) + (40,000)*(.9)
E(X) = 66,000
Now remember this does not include the opportunity cost of spending your four years in college studying biology instead of another degree.
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