Use the Following to Answer Questions

question 128

Multiple Choice

Use the following to answer questions:
Scenario: Diversification
Morris is considering investing $10,000 in a sunglass company or a rain poncho company. If it is a rainy year and he invests only in the sunglass company, he will lose $5,000. However, if it is a rainy year and he invests only in the rain poncho company, he will earn $10,000. If it is a sunny year and he invests only in the sunglass company, he will earn $10,000; if he invests only in the rain poncho company, he will lose $5,000 in a sunny year. There is a 50% chance of a sunny year and a 50% chance of a rainy year.
-(Scenario: Diversification) Look at the scenario Diversification. If Morris invests half of his money in the sunglass company and half in the rain poncho company, what is his expected gain or loss?

• A) a loss of $2,500
• B) to break even
• C) a gain of $2,500
• D) a gain of $10,000

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Definitions:

Population Variance

A statistical measure of the distribution of values in a population, indicating how much individuals within the population differ from the population mean.

Upper Limit

The maximum value in a set or the highest value that a variable can take.

Significance Level

A threshold chosen by a researcher or statistician below which a p-value indicates a statistically significant result, rejecting the null hypothesis.

Mean Age

The average age of all individuals in a particular group or set, calculated by summing their ages and dividing by the number of individuals.