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Conceptual Overview: Explore how standard deviation measures the risk of an investment. For both U.S. Water (blue curve) and Mariin Products (reed curve) the expected
Conceptual Overview: Explore how standard deviation measures the risk of an investment. For both U.S. Water (blue curve) and Mariin Products (reed curve) the expected return is 10\%. However, the spread of possible outcomes for U.S. Water is "tighter" (i.e., closer to the expected return of 103s) than the spread for Martin Products. The depicted dilstributions are both normal dilisibutions, but with difterent standard deviations. Use the silider at the bottom to change the standard devation for the distribution of outcomes for Martin Products. Drag the vertical dashed line on the graph to the lett or right to coserve the probability of exceeding a particular rate of retum. P(Water>0.0)=1.00 1. As the standard deviation for Martin Products' distribution increases, the distribution for Martin Products: a. becomes steeper and more like the distribution for U.S. Water b. does not change c. becomes flatter and less like the distribution for U.S. Water d. might either become steeper or flatter 2. Use the slider to set the standard deviation for Martin Products to be 6.0 . The probability of having a rate of return of at least 5% (move the cursor to 5.0 ) a. is greater for U.S. Water than for Martin Products b. is the same for both U.S. Water and the Martin Products distribution c. is greater for Martin Products than U.S. Water d. cannot be determined a. is greater for U.S. Water than for Martin Products b. is the same for both U.S. Water and the Martin Products distribution c. is greater for Martin Products than U.S. Water d. cannot be determined a. are much less than in investing in U.S. Water b. are the same as investing in U.S. Water c. are greater than in investing in U.S. Water d. cannot be determined 5. As the standard deviation of outcomes for Martin Products increases, investing in Martin Products becomes riskier because a. the range of outcomes having some probability becomes wider b. an outcome at or near the expected return of 10% becomes less likely c. although the chances of some big gains increase, the chances for some big losses also increase. d. all of the above reasons e. none of the above reasons
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