Math hexpected value help

Question

A company has a choice of four oil fields to buy. Field one has a 25% chance of having 10 million dollars worth of oil, field two has a 33% chance of having 9 million dollars worth of oil, field three has a 50% chance of having 3 million dollars worth of oil, and field four has a 80% chance of having 2 million dollars worth of oil. Based on the field that yields the highest expected value, which field should you buy?

Answer 1

Expected value for each field = probability * amount oil is worth in the field

Field 1:  0.25*$10,000,000 = $2,500,000

 

Field 2:  0.33*$9,000,000 = $2,970,000

 

Field 3:  0.50*$3,000,000 = $1,500,000

 

Field 4:  0.80*$2,000,000 = $1,600,000

 

Field 2 should be bought since it has the potential of earning $2,970,000 (highest expected value).

Answer 2

Calculate the four different expected values, which are product of probability and $ payoff.

 

Choose the largest one as the speculative investment.