The Table Below Presents Returns Across Three States of Nature

question 2

Multiple Choice

The Table below presents returns across three states of nature for two assets: Risky and Safe. The expected return on Safe is 8.4%. Which asset has a higher expected return? $$\begin{array} { | c | c | c | c | } \hline \text { State of Nature } & \text { Probability } & \begin{array} { c } \text { Return to Risky } \\\text { Investment }\end{array} & \begin{array} { c } \text { Return to Safe } \\\text { Investment }\end{array} \\\hline \text { Recession } & 0.2 & - 5 \% & 14 \% \\\hline \text { Normal } & 0.6 & 15 \% & 8 \% \\\hline \text { Boom } & 0.2 & 25 \% & 4 \% \\\hline\end{array}$$

• A)Risky
• B)Safe
• C)Both have the same expected return

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Definitions:

Observable Characteristics

Traits or features of an organism that can be seen or measured directly.

Phenotypes

The observable characteristics or traits of an organism resulting from the interaction of its genetic makeup and its environment.

Genotypes

The genetic makeup of an organism that determines a specific characteristic or trait.

Natural Selection

A fundamental mechanism of evolution where organisms better adapted to their environment tend to survive and produce more offspring.