Mean and Variance of Discrete Random Variable and the Characteristics of Normal RandomVariableExample 1: Suppose that you are given the option of two investment portfolios, A and B, with potential profits and the associated probabilities displayed below.PORTFOLIO AProfit X-2,000-4,0003,0005,000PROBABILITY P(x)0.30.10.30.3PORTFOLIO BProfit X-3,000-2,0004,0005,000Probability P(X)0.20.20.40.2Calculated Mean and Standard Deviation for Portrollo A:Mean = 1,400 and standard deviation = 3,322.65Calculated Mean and Standard Deviation for Portrollo B:Mean=1,600 and standard deviation= 3,882.31A. using the mean and variance of portfolio A, interpret the resultB.Based on the expected profits, which portfolio will you choose? Topic:Mean and Variance of Discrete Random Variable and the Characteristics of Normal RandomVariableExample 1: Suppose that you are given the option of two investment portfolios, A and B, withpotential profits and the associated probabilities displayed below.PORTPOLIOProfitProbablityP(x)0.30.10.30.3Calculated Mean and Standard Deviation for Portfolio A: p= 1,400 and 6 = 3,322.65ORTFOLIOProbablityP(X)0.20.20.4Profit-2,0004,0003,0005,000-3,000-2,0004,0005,0000.2!3!%3DCalculated Mean and Standard Deviation for Portfollo B:A. Using the mean and variance of Portfolo A, interpret the result.20227378 15:05p= 1,600 and 8= 3.882.31%3!B. Based on the expected profits, which portfolio will you choose?

1 . Mean and std deviation of portfolio A. R(return) P(Probab) r × p (r)2× p -2000 0.3 -600…

Answered: Topic: Mean and Variance of Discrete…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

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Mean and Variance of Discrete Random Variable and the Characteristics of Normal Random Variable Example 1: Suppose that you are given the option of two investment portfolios, A and B, with potential profits and the associated probabilities displayed below. PORTFOLIO A Profit X -2,000 -4,000 3,000 5,000 PROBABILITY P(x) 0.3 0.1 0.3 0.3 PORTFOLIO B Profit X -3,000 -2,000 4,000 5,000 Probability P(X) 0.2 0.2 0.4 0.2 Calculated Mean and Standard Deviation for Portrollo A: Mean = 1,400 and standard deviation = 3,322.65 Calculated Mean and Standard Deviation for Portrollo B: Mean=1,600 and standard deviation= 3,882.31 A. using the mean and variance of portfolio A, interpret the result B.Based on the expected profits, which portfolio will you choose?

Topic:
Mean and Variance of Discrete Random Variable and the Characteristics of Normal Random
Variable
Example 1: Suppose that you are given the option of two investment portfolios, A and B, with
potential profits and the associated probabilities displayed below.
PORTPOLIO
Profit
Probablity
P(x)
0.3
0.1
0.3
0.3
Calculated Mean and Standard Deviation for Portfolio A: p= 1,400 and 6 = 3,322.65
ORTFOLIO
Probablity
P(X)
0.2
0.2
0.4
Profit
-2,000
4,000
3,000
5,000
-3,000
-2,000
4,000
5,000
0.2
!3!
%3D
Calculated Mean and Standard Deviation for Portfollo B:
A. Using the mean and variance of Portfolo A, interpret the result.20227378 15:05
p= 1,600 and 8= 3.882.31
%3!
B. Based on the expected profits, which portfolio will you choose?

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