Question

The anticipated annual return for a $1000 investment in either of two shares is summarized in the probability distributions below:

Return from A ($) |
-100 |
0 |
60 |
140 |

Return from B ($) |
-50 |
40 |
40 |
50 |

Probability |
0.1 |
0.3 |
0.5 |
0.1 |

Calculate the expected return from each investment.

Other than expected value, what else might be important in comparing the shares?

Answer #1

Expected return for A is **$34** .

Expected return for B is **$32**.

Other than expected value, comparimg the variance (standard deviation) is might be important because for investment A shares spread or vary much i.e. from -100 to 140 and that for investment B shares spread less i.e. from -50 to 50.

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