1. You have $200 that you would like to invest in stocks. You have narrowed your options down to two stock options: Stock A and Stock B. The table below shows their possible net gains and probabilities 1 year after the investment. Stock A Stock B X = Net Gain Probability Y = Net Gain Probability %3! -$100 .1 -$400 .2 -$50 .2 $0 .6 $0 .4 $50 .2 $400 .2 $100 .1
Continuous Probability Distributions
Probability distributions are of two types, which are continuous probability distributions and discrete probability distributions. A continuous probability distribution contains an infinite number of values. For example, if time is infinite: you could count from 0 to a trillion seconds, billion seconds, so on indefinitely. A discrete probability distribution consists of only a countable set of possible values.
Normal Distribution
Suppose we had to design a bathroom weighing scale, how would we decide what should be the range of the weighing machine? Would we take the highest recorded human weight in history and use that as the upper limit for our weighing scale? This may not be a great idea as the sensitivity of the scale would get reduced if the range is too large. At the same time, if we keep the upper limit too low, it may not be usable for a large percentage of the population!
A) Find the
decimal places.
B) Find the standard deviation for Stock A. Round your final answer to
two decimal places.
C) The expected value and standard deviation of Stock B is 0 and 223.61
respectively. If you wanted to be cautious with your investment, which stock
option should you choose? Explain your reasoning.
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