Part A

A standard dev has meaning only when estimating options. If 2 choices have similar expected values the one with the higher standard deviations

a) carries a low probability of a bad outcome

b) is more difficult to understand

c)carries a greater risk

d) is more likely to appeal to a risk averse person.

Part B

4 Choices have similar expected values of $500,000. Program A has a standard deviation (SD) of 0.5, Program B has a SD of 2.6, Program C has a SD of 5.3 and Program D has a SD of 6.0. Which one would likely be chosen by a risk averse person

a) Program A

b) Program B

c) Program C

d) Program D

Part C

Mary is thinking about an investment that has an 80% chance of $10,000 profits and an estimated 20% chance of $150,000 profits. The expected value of this adventure is

a) $5000

b) $8000

c) $38000

d) $80000

Part D

The range of possible values is helpful because it

a) identifies the best and worse case scenarios

b) identifies which outcome is most likely to occur

c) facilitate comparison s among several outcomes

d) determines the expected value