Consider the Following Discrete Probability Distributions of Payoffs for 3

question 4

Multiple Choice

Consider the following discrete probability distributions of payoffs for 3 securities that are held in a DI's trading portfolio (payoff amounts shown are in $millions) :

$\begin{array} { | l r r | } \text { SECURITY } & \text { PROBABILITY } & \text { PAYOFF } \\\text { Alpha } & 0.50 & 355 \\& 0.49 & 150 \\& 0.01 & - 300\end{array}$ $\begin{array} { lcc } \text { SECURITY } & \text { PROBABILITY } & \text { PAYOFF } \\\text {Beta } & 0.50 & 1500 \\& 0.49 & - 300 \\& 0.0025 & - 3,300\end{array}$
$\begin{array} { lcc } \text { SECURITY } & \text { PROBABILITY } & \text { PAYOFF } \\\text {Gamma } & 0.49 &400 \\&0.49&150 \\&0.01 &-150 \\&0.01&-2,000\end{array}$
What are the expected returns for securities Alpha and Beta,respectively (in millions) ?

• A)-$248 and +$248
• B)+$248 and +$248
• C)-$300 and +$400
• D)+$300 and -$3,300

---

Definitions:

Inflation

The rate at which the standard pricing for all goods and services moves upward, reducing the leverage of consumers to buy.

World Commodities

Raw materials or primary agricultural products that are traded on a global scale, which can include oil, gold, wheat, and coffee.

Price Level

The current mean value of prices for every good and service available in the economy.

Output

The total amount of goods or services produced by a person, machine, business, or country.