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Question:

Using the following three-point estimates, evaluate the expected value using the beta distribution formula: Optimistic = 25, Pessimistic = 50, Most Likely = 35.

A
36

Explaination

Expected value can be calculated using a triangular distribution (simple average) or beta distribution (weighted average). The three-point estimating formula that uses a beta distribution is as follows: (Optimistic + Pessimistic + (4 × Most Likely)) ÷ 6. Plug in the values provided to calculate the following: ($25 + $50 + ($35 × 4)) ÷ 6 = $35.8, or 36 when rounded to the nearest whole number.

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