Question
Your objective is to minimize the variance of your total year-end profit coming from your franchises. Suppose it's the beginning of the year and a
Your objective is to minimize the variance of your total year-end profit coming from your franchises. Suppose it's the beginning of the year and a businessman named Ronald offered you a contract. In the contract, Ronald will receive the year-end profit outcome that is realized from your McDowells franchise, and in exchange, you will receive the year-end profit outcome that is realized from Ronald's Burger Queen franchise. (For those of you interested in finance, this type of arrangement is similar to what is known as a swap.) You believe that Burger Queen's expected year-end profit and standard deviation of its year-end profit is the same as McDowells'. However, you believe Burger Queen's year-end profit outcomes will be independent from Manytimes Fitness' year-end profit outcomes. Based on your objective and what you believe about the year-end profit outcomes for McDowell's, Burger Queen, and Manytimes Fitness, what is the most logical response?
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