50%(2)1 out of 2 people found this document helpful
This preview shows page 2 - 7 out of 9 pages.
What about the deviation from the average number of changes?
3Case StudyAn investor plans to invest $50 000 in one of four investments. The return oneach investment depends on whether next year’s economy is strong or weak.The following table summarizes the possible payoffs in dollars, for the fourinvestments.Nextyear’seconomyInvestmentstrongweakCertificate of deposit6 0006 000Office complex15 0005 000Land speculation33 000-17 000Technical school5 50010 000Let?, ?, ?, ?denote respectively the payoffs for the certificate of deposit,office complex, land speculation and technical school.Then?, ?, ?, ?are random variables. Assume that next year’s economy has a40% chance ofbeing strongand a 60% chance ofbeing weak.1)Find the probability distributions of each of the four random variables2)Determine the expected values of each of four random variables.3)Which investment has the best expected payoff? Which the worst?4)Which investment would you sect and why?