Which investment has the highest expected return? Which is the safest investment and why? Which is the riskiest investment and why? A. x P(x) xP(x) 7000000 0.2 1400000 0 0.3 0 -1000000 0.5 -500000 Total 900000 b. x P(x) xP(x) 3000000 0.10 3000000 2000000 0.60 1200000 -1000000 0.30 -300000 Total 1200000 c. x P(x) xP(x) 3000000 0.40 1200000 0 0.50 0 -1000000 0.10 -100000 Total 1100000
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
Which investment has the highest expected return?
Which is the safest investment and why?
Which is the riskiest investment and why?
A.
| x | P(x) | xP(x) |
| 7000000 | 0.2 | 1400000 |
| 0 | 0.3 | 0 |
| -1000000 | 0.5 | -500000 |
| Total | 900000 |
b.
| x | P(x) | xP(x) |
| 3000000 | 0.10 | 3000000 |
| 2000000 | 0.60 | 1200000 |
| -1000000 | 0.30 | -300000 |
| Total | 1200000 |
c.
| x | P(x) | xP(x) |
| 3000000 | 0.40 | 1200000 |
| 0 | 0.50 | 0 |
| -1000000 | 0.10 | -100000 |
| Total | 1100000 |
In (b) expected value is the highest.
E(X)= 1200000
So this (b) investment has the safest investment.
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