Question

the expected value of an accountants profit and loss analysis is 0. explain what this means.

choose the correct answer below.

a. an expected value cannot be equal to 0.
b. since the expected value cannot be less than 0, an expected value of 0 means that the average money gained is equal to or less than the average money spent.
c. an expected value of 0 means that there was not any money gained or spent.
d. an expected value of 0 means that the average money gained is equal to the average money spent, representing the break-even point.

Explanation:

Analyze the definition of expected value in a financial context

$$ E(X) = \sum x_i p_i = 0 $$

Evaluate the given multiple-choice options

• Option A is incorrect because an expected value can be any real number, including 0.
• Option B is incorrect because expected values can be negative, and the definition of 0 is not "less than or equal to."
• Option C is incorrect because an expected value of 0 does not mean no transactions occurred; it means the net average is zero.
• Option D is correct because an expected value of 0 indicates that, on average, gains equal losses (money gained equals money spent), which is the break-even point.

Answer:

• A. An expected value cannot be equal to 0.
• B. Since the expected value cannot be less than 0, an expected value of 0 means that the average money gained is equal to or less than the average money spent.
• C. An expected value of 0 means that there was not any money gained or spent.
• D. An expected value of 0 means that the average money gained is equal to the average money spent, representing the break-even point. (Correct answer)