Consider the Following Probability Distribution for Stocks a and B

question 10

Multiple Choice

Consider the following probability distribution for stocks A and B: $\begin{array}{cccc}\underline{\text { State} } & \underline{\text { Probability }} & \underline{\text { Return on Stock A } }& \underline{\text { Return on Stock B }} \\1 & 0.15 & 8 \% & 8 \% \\2 & 0.20 & 13 \% & 7 \% \\3 & 0.15 & 12 \% & 6 \% \\4 & 0.30 & 14 \% & 9 \% \\5 & 0.20 & 16 \% & 11 \%\end{array}$

-The expected rates of return of stocks A and B are _____ and _____,respectively.

• A)13.2%; 9%
• B)13%; 8.4%
• C)13.2%; 7.7%
• D)7.7%; 13.2%
• E)none of the above

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Definitions:

Sensitivity

The degree to which something is affected by changes in external factors, often used in contexts like financial analyses, project planning, or scientific measurements.

Marginal Utility

This concept describes the additional satisfaction or utility a consumer receives from consuming one more unit of a good or service.

Total Utility

The complete satisfaction or benefit a consumer receives from consuming a certain amount of goods or services.

Diminishing Marginal Utility

A common economic concept stating that as a person consumes more of a product, the satisfaction (utility) gained from each additional unit decreases.