Question
Consider the following random variables based on a roll of a fair die, (1) You get $0.5 multiplied by the outcome of the die (2)
- Consider the following random variables based on a roll of a fair die,
(1) You get $0.5 multiplied by the outcome of the die (2) You get $0 if the outcome is below or equal 3 and $1 otherwise (3) You get $1 if the outcome is below or equal 3 and $0 otherwise (4) You pay $1.5 if the outcome is below or equal 3 and get $1 multiplied the outcome otherwise
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| Die Outcome | Random Variable (1) | Random Variable (2) | Random Variable (3) | Random Variable (4) |
| 1 | $0.50 | $0.00 | $1.00 | -$1.50 |
| 2 | $1.00 | $0.00 | $1.00 | -$1.50 |
| 3 | $1.50 | $0.00 | $1.00 | -$1.50 |
| 4 | $2.00 | $1.00 | $0.00 | $4.00 |
| 5 | $2.50 | $1.00 | $0.00 | $5.00 |
| 6 | $3.00 | $1.00 | $0.00 | $6.00 |
Which random variable(s) has/have the highest variance? a. Random Variable 1 b. Random Variable 2 c. Random Variable 3 d. Random Variable 4 e. Random Variable 2 and 3
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Finance For Managers
Authors: Harvard Business School Press
1st Edition
1578518768, 978-1578518760
