2. Compute the expected return and standard deviation for each of the two combinations.

Table 1	Houston Disbursment Profitability
Profitability of Houston Disbursmen in various economic conditions.
Variable wages are 40 percent of revenue, and variable operating costs are 20 percent of revenue
	Weak Economy			Strong Economy
OIL PRICES:	LOW	HIGH		LOW	HIGH
Total Revenue	$200,000.00	$300,000.00		$250,000.00	$400,000.00
Variable Wages	($80,000.00)	($120,000.00)		($100,000.00)	($160,000.00)
Variable operating costs	($40,000.00)	($60,000.00)		($50,000.00)	($80,000.00)
Fixed Wages	($50,000.00)	($50,000.00)		($50,000.00)	($50,000.00)
Fixed operating costs	($45,000.00)	($45,000.00)		($45,000.00)	($45,000.00)
Earnings before tax	($-15,000.00)	$25,000.00		$5,000.00	$65,000.00

Costs 75K TO OPEN AN OFFICE IN EITHER ALASKA OR CALI

ALASKA
	Weak Economy			Strong Economy
OIL PRICES:	LOW	HIGH		LOW	HIGH
Total Revenue	$50,000	$300,000		$75,000	$400,000
Variable Wages	($20,000)	($120,000)		($30,000)	($160,000)
Variable operating costs	($10,000)	($60,000)		($15,000)	($80,000)
Fixed Wages	($30,000)	($30,000)		($30,000)	($30,000)
Fixed operating costs	($30,000)	($30,000)		($30,000)	($30,000)
Earnings before tax	($-40,000)	$60,000		($-30,000)	$100,000
CALIFORNIA
	Weak Economy			Strong Economy
OIL PRICES:	LOW	HIGH		LOW	HIGH
Total Revenue	$200,000	$200,000		$250,000	$250,000
Variable Wages	($80,000)	($80,000)		($100,000)	($100,000)
Variable operating costs	($40,000)	($40,000)		($50,000)	($50,000)
Fixed Wages	($40,000)	($40,000)		($40,000)	($40,000)
Fixed operating costs	($35,000)	($35,000)		($35,000)	($35,000)
Earnings before tax	$5,000	$5,000		$25,000	$25,000

Costs 75K TO OPEN AN OFFICE IN EITHER ALASKA OR CALIFORNIA

28% tax rate on earnings.

Probability of a STRONG economy is 66.6%. Probability of a weak economy is 33.3%.