Problem 1:

An individual has to choose between investment A and investment B. The individual estimates that the income and probability of the income from each investment are as given in the following table:

a) Using Excel statistical tools, calculate the standard deviation of the distribution of each investment.

(b) Which of the two investments is more risky?

(c) Which investment should the individual choose?

Investment A Income Probability Expectec Deviatio Deviation Deviation Squared Squared'Probabilit 450000 75000 75000 450000 1050000 1024.695077 Income 4000 0.2 5000 0.3 6000 0.3 7000 0.2 800 1500 2250000 1500 1800 500 1400 1500 2250000 5500 250000 250000 500 Variance Standard Deviation Investment B Income Probability Expectec Deviatio Deviation Deviation Income Squared Squared'Probabilit 4000 0.3 60000.4 80000.3