
Concept explainers
To find: The investment advised to Carmen to choose.

Answer to Problem 17PPS
The investment advised to Carmen to choose is Fund A
Explanation of Solution
Given:
For Fund A,
30% chance of a $1900 profit
30% chance of a $600 profit
15% chance of a $200 loss
25% chance of a $500 loss
For Fund B,
40% chance of a $1600 profit
10% chance of a $900 profit
10% chance of a $300 loss
40% chance of a $400 loss
Calculation:
Calculate the value of
The value of the variance and the standard deviation for fund A is calculated in table.
$1900 | 0.30 | 1703025 | 510907.5 |
$600 | 0.30 | 25 | 7.5 |
-$200 | 0.15 | 632025 | 94803.75 |
-$500 | 0.25 | 1199025 | 299756.25 |
Variance | = | 905475 | |
Standard deviation | = | 951.5645012 |
Calculate the value of
The value of the variance and the standard deviation for fund B is calculated in table.
$1600 | 0.430 | 1123600 | 449440 |
$900 | 0.10 | 129600 | 12960 |
-$300 | 0.10 | 705600 | 70560 |
-$400 | 0.40 | 883600 | 353440 |
Variance | = | 886400 | |
Standard deviation | = | 941.4881837 |
Both have almost same standard deviation but Fund A has higher expected value so, Fund A will be chosen.
Thus,the investment advised to Carmen to choose is Fund A
Chapter 11 Solutions
Glencoe Algebra 2 Student Edition C2014
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