Use the Following Two Probability Distributions for Sales of a Firm

question 50

Multiple Choice

Use the following two probability distributions for sales of a firm to answer Questions :
$$\begin{array} { c c c } \text { Sales } & \begin{array} { c } \text { Distribution1} \\\text { Probability }\end{array} & \begin{array} { c } \text { Distribution2} \\\text { Probability }\end{array} \\\hline 2,000 & 0.05 & 0.05 \\3,000 & 0.20 & 0.15 \\4,000 & 0.50 & 0.20 \\5,000 & 0.20 & 0.35 \\6,000 & 0.05 & 0.25\end{array}$$
-Which distribution is more risky?

• A) Distribution 1 has a higher variance than Distribution 2, so Distribution 1 is more risky.
• B) Distribution 2 has a higher variance than Distribution 1, so Distribution 2 is more risky.
• C) Distribution 2 has a larger standard deviation than Distribution 1, so Distribution 2 is more risky.
• D) both a and c
• E)non of the bove

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Definitions:

Commercial Paper

Very short-term debt issued by major companies.

Revolving Credit Agreement

A formal, binding agreement with a bank as to the maximum amount a firm can borrow during a period of time. Interest is paid on the amount borrowed and a commitment fee is paid on the unused balance.

Promissory Note

A lending agreement in which the borrower promises to pay principal and interest in accordance with specific terms.

Commercial Banks

Banks that provide a wide range of services to businesses and consumers including loans, checking accounts, and savings options.