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Chapter_10_sol_students

# 04908112 d diff1 topic107estimatingtheexpectedreturn

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Unformatted text preview: of the FDA approving a drug is 50%. 15) What is the standard deviation of Big Cureʹs average net income for their new blockbuster drug? A) \$0 B) \$1 billion C) \$100 million D) \$500 million Answer: D Explanation: A) B) C) D) expected payoff = prob of payoff × amount if successful = .5 × \$1 billion = \$500 million Standard deviation = = 500 million Diff: 2 Topic: 10.5 Common Versus Independent Risk Skill: Analytical 16) The standard deviation of Little Cureʹs average net income for their ten new drugs is closest to: A) \$50 million B) \$25 million C) \$16 million D) \$500 million Answer: C Explanation: A) B) C) expected payoff = prob of payoff × amount if successful = .5 × \$1 billion = \$500 million Standard deviation for one drug= = 50 million Standard deviation(all drugs) = SD(one drug) / number of drugs = 50 / 10 = 15.81 million D) Diff:...
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