Murphy National Bank Is Thinking About Adding a New Branch

question 87

Multiple Choice

Murphy National Bank is thinking about adding a new branch in a very different market area.It estimates that the new office will have an expected return of 16% with a standard deviation of 8%.Currently,it has an expected return of 12% with a standard deviation of 4%.The correlation between the returns on the new branch and the bank's current returns is estimated to be 0.20.The bank estimates that the new branch will represent 15 percent of the revenues of the bank.What is the bank's expected risk (measured by the standard deviation) with the new branch? Round to the nearest 0.1 percent.

• A)14.6 percent
• B)3.8 percent
• C)4.6 percent
• D)7.4 percent
• E)5.8 percent

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Definitions:

First-Degree Price Discrimination

Practice of charging each customer her reservation price.

Marginal Revenue

The increase in revenue resulting from the sale of one additional unit of a product or service.

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually do pay.

Intertemporal Price Discrimination

A pricing strategy where a seller changes prices over time for the same product or service to maximize profits by taking advantage of differences in consumers' willingness to pay at different times.