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Unformatted text preview: EXCERCISE 4 Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question 1) The expected value is a measure of A) central tendency. B) uncertainty. C) risk. D) variability. 1) 2) Assume that one of two possible outcomes will follow a decision. One outcome yields a $75 payoff and has a probability of 0.3; the other outcome has a $125 payoff and has a probability of 0.7. In this case the expected value is A) $110. B) $60. C) $35. D) $85. 2) 3) An investment opportunity is a sure thing; it will pay off $100 regardless of which of the three possible outcomes comes to pass. The variance of this investment opportunity: A) is 2. B) is 1. C) is - 1. D) is 0. E) cannot be determined without knowing the probabilities of each of the outcomes. 3) 4) Assume that two investment opportunities have identical expected values of $100,000. Investment A has a variance of 25,000, while investment B's variance is 10,000. We would expect most...
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This note was uploaded on 10/19/2010 for the course ECON 303 taught by Professor Cheng during the Fall '07 term at USC.
- Fall '07