How would I solve this statistical probability problem?

Question

I've been really sick and have missed a few days in a row in my course. I can't find any problems like this in my book or notes, and was wondering if somebody could point me in the right direction. I don't need an answer, just the set-up or formula for this problem type:

A day trader buys an option on a stock that will return $175 profit if the stock goes up today and loses $280 if it goes down.  If the trader thinks there is a 70% chance that the stock will go up, what is his expected profit on the option today?

Thanks!

David · Answer

he has a .7 probability that he will profit 175
he has a .3 probability that he will lose 280

.7 * 175 + .3 * - 280 = 
122.5 - 84 = 38.5

$38.50

barbe · Answer

bypass returned to your definition of a probability distribution. For a discrete inhabitants, it particularly is that the sum of probability for each random variable (right here, the type of instruments on in a given abode for 4 families) is one. it is the definition of a probability distribution, so which you're abode. partly 2, the probability of a given merchandise being undesirable is 0.02. If I p.c.. 4 samples, I even have different consequences (i might desire to be authentic unlucky and p.c.. 4 out of fifty interior the batch that are undesirable, on the different hand, i might desire to p.c.. not one of the 50 that are undesirable.) The probability that a given merchandise is undesirable is 0.02, that it particularly is physically powerful, 0.ninety 8. Then, you may create the probability distribution for 4 products. the 1st term is the probability that each and each physique 4 are solid, and is approximately 0.89. So, the probability that selections land up with a minimum of one undesirable merchandise is barely 0.11.

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How would I solve this statistical probability problem?

2 Answers