Consider the Following Probability Distribution for Stocks a and B

question 55

Multiple Choice

Consider the following probability distribution for stocks A and B: $$\begin{array} { c c c c } \text { State } & \text { Probability } & \text { Return on Stock A} & \text { Return on Stock B } \\1 & 0.10 & 10 \% & 8 \% \\2 & 0.20 & 13 \% & 7 \% \\3 & 0.20 & 12 \% & 6 \% \\4 & 0.30 & 14 \% & 9 \% \\5 & 0.20 & 15 \% & 8 \% \\\hline\end{array}$$ The variances of stocks A and B are _____ and _____, respectively.

• A) 1.5%; 1.9%
• B) 2.2%; 1.2%
• C) 3.2%; 2.0%
• D) 1.5%; 1.1%

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Definitions:

Price Change

A variation in the cost of a good or service over time, influenced by factors like supply, demand, and inflation.

More Elastic

Describes a situation where the demand or supply for a good or service is highly responsive to changes in price.

Less Elastic

Describes a situation where the demand or supply for a product or service is relatively unresponsive to changes in price.

Perfectly Inelastic

A situation where the demand or supply for a good does not change in response to changes in price.