At a public seminar hold by a financial company, a managing partner discussed investment risk analysis. She discussed how a coefficient of variation (refer to chapter 3 to review the coefficient of variation.) To demonstrate her point, she used two hypothetical stocks as examples. She considered x to be equal to the change in assets for a $1,000.00 investment in stock A and y the change in assets for a $1,000.00 investment in stock B. The following probability distributions were presented to the audience. X P(x) Y P(y) -$1,000.00 0.10 -$1,000.00 0.20 0.00 0.20 0.00 0.40 500.00 0.30 500.00 0.30 1,000.00 0.30 1,000.00 0.05 2,000.00 0.10 2,000.00 0.05 Please use two different tables, one for variable x and one for variable y, to answer the following questions. Put the result of each variable below its table. I have to see all your calculations in each the table Compute the expected values for random variable x and y: E(x) and E(y) Compute the standard deviations for random variable x and y: σx and σy Recalling that the coefficient of variation is determined by the ratio of the standard deviation to the mean, compute the coefficient of variation for each random variable. CVx and CVy Referring to part c, suppose the seminar director said that stock A was riskier since its standard deviation was greater than the standard deviation of stock B. How would you respond? (hint: What do the coefficients of variation imply?)

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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At a public seminar hold by a financial company, a managing partner discussed investment risk analysis. She discussed how a coefficient of variation (refer to chapter 3 to review the coefficient of variation.) To demonstrate her point, she used two hypothetical stocks as examples. She considered x to be equal to the change in assets for a $1,000.00 investment in stock A and y the change in assets for a $1,000.00 investment in stock B. The following probability distributions were presented to the audience.

X	P(x)	Y	P(y)
-$1,000.00	0.10	-$1,000.00	0.20
0.00	0.20	0.00	0.40
500.00	0.30	500.00	0.30
1,000.00	0.30	1,000.00	0.05
2,000.00	0.10	2,000.00	0.05

Please use two different tables, one for variable x and one for variable y, to answer the following questions. Put the result of each variable below its table. I have to see all your calculations in each the table

Compute the expected values for random variable x and y: E(x) and E(y)
Compute the standard deviations for random variable x and y: σ_xand σ_y
Recalling that the coefficient of variation is determined by the ratio of the standard deviation to the mean, compute the coefficient of variation for each random variable. CV_x and CV_y
Referring to part c, suppose the seminar director said that stock A was riskier since its standard deviation was greater than the standard deviation of stock B. How would you respond? (hint: What do the coefficients of variation imply?)

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