Expected P&L of a Two-Outcome Strategy

Expected value is a probability-weighted average of the possible outcomes.

Compute $0.4(4)+0.6(-2)$.

1. 1. Apply linearity of expectation

   $E[\text{P\&L}]=0.4(4)+0.6(-2)$.

2. 2. Compute

   $1.6-1.2=0.4$.

   $$E[\text{P\&L}]=0.4$$

Answer: 0.4