Under what conditions can the standard deviation be used to measure the relative risk of two investments? b. Under what conditions must the coefficient of variation (CoVar) be used to measure the relative risk of two investments?
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|
Probability |
Possible |
|
0.25 |
-0.10 |
|
0.15 |
0.00 |
|
0.35 |
0.10 |
|
0.25 |
0.25 |
a. Under what conditions can the standard deviation be used to measure the relative risk of two investments?
b. Under what conditions must the coefficient of variation (CoVar) be used to measure the relative risk of two investments?
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- Suppose that there are two types of workers: high and low. Employers cannot distinguish between different types during an interview. Employers value high type at $200,000 and low type at $100,000. Employers are in a competitive market (i.e. zero profit applies). High type workers have a reservation wage of 140,000 and low type workers have a reservation wage of 80,000. Suppose that 50% of all workers are high type. The productivities, reservation wages, and the probabilities are common knowledge). What wage would the employers offer? Please explain the solution!Exercise 15:- Each unit of a product produced and sold earns a profit of Rs. 50 and unsold units result into a loss of Rs. 30. The probability distribution is given below :Units Demanded : 0 1 2. 3.Probability : 0.2. 0.2. 0.25. 0.3Calculate EPPI and EVPI.a. A company produces lightbulbs whose life follows a normal distribution, with mean 1200 hours and standard deviation 250 hours. If we choose a lightbulb at random, what is the probability that its lifetime will be between 900 and 1300 hours? (answer in three decimal places)
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