Scenario 5.4: Suppose an Individual Is Considering an Investment in Which There

question 32

Multiple Choice

Scenario 5.4:
Suppose an individual is considering an investment in which there are exactly three possible outcomes, whose probabilities and payoffs are given below:
The expected value of the investment is $25. Although all the information is correct, information is missing.
-Refer to Scenario 5.4. What is the variance of the investment?

• A) -75
• B) 275
• C) 3,150
• D) 4,637.50
• E) 8,125

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Definitions:

Full-Service Contract

An agreement that provides a complete range of services related to a specific product, property, or activity, including maintenance, repairs, and often replacements.

Profit

The financial gain achieved when the revenue from business activities exceeds the expenses, costs, and taxes involved in maintaining the operation.

Operating Loss

A financial metric representing the negative balance resulting from a company's operating expenses exceeding its revenues.

Variable Cost

Costs that change in proportion to the level of activity or volume of goods produced, such as raw materials and labor expenses.