A Manager Is Attempting to Assess the Probability of a Recession

question 8

Multiple Choice

A manager is attempting to assess the probability of a recession ending in the next six months, and its impact on expected profitability.The manager believes there is 75 percent chance the recession will end in six months and profits will return to $400 million.However, there is a 25 percent chance the recession will not end in six months resulting in a $5 million loss.The standard deviation of profits over the next six months is

• A)$175.37 million.
• B)$320.18 million.
• C)$286.39 million.
• D)$0 million.

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Definitions:

Unemployment Rate

The percentage of the employment pool that is not working but is actively on the lookout for a job opportunity.

Inflation Rate

The rise in the overall cost of goods and services across an economy during a certain timeframe, expressed as a percentage.

Comparative Advantage

The capability of a person, business, or nation to generate a product or offer a service with a lesser opportunity cost compared to its rivals.

Absolute Advantage

The ability of an individual, company, or country to produce more of a good or service with the same amount of resources as others.