To calculate the expected value of the stock investment, we multiply the value of each possible outcome by its probability and then sum these products.
1. Calculate the expected contribution from each scenario:
- Decrease to [tex]$16,000 with a probability of 25%:
\[ 16,000 \times 0.25 = 4,000 \]
- Maintain value at $[/tex]20,000 with a probability of 25%:
[tex]\[ 20,000 \times 0.25 = 5,000 \][/tex]
- Increase to [tex]$25,500 with a probability of 50%:
\[ 25,500 \times 0.50 = 12,750 \]
2. Sum these values to find the expected value of the investment:
\[
4,000 + 5,000 + 12,750 = 21,750
\]
Therefore, the expected value of this stock investment is $[/tex]21,750.
