What about the deviation from the average number of changes 3 Case Study An

# What about the deviation from the average number of

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What about the deviation from the average number of changes?
3 Case Study An investor plans to invest \$50 000 in one of four investments. The return on each investment depends on whether next year’s economy is strong or weak. The following table summarizes the possible payoffs in dollars, for the four investments. Next year’s economy Investment strong weak Certificate of deposit 6 000 6 000 Office complex 15 000 5 000 Land speculation 33 000 -17 000 Technical school 5 500 10 000 Let ?, ?, ?, ? 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 a 40% chance of being strong and a 60% chance of being weak . 1) Find the probability distributions of each of the four random variables 2)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?

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