Consider the Following Discrete Probability Distributions of Payoffs for 3

question 2

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) : $$\begin{array} { | l | l | l | } \hline \text { SECURITY } & \text { PROBABILITY } & \text { PAYOFF } \\\hline \text { Alpha } & 0.50 & 355 \\\hline & 0.49 & 150 \\\hline & 0.01 & - 300 \\\hline\end{array}$$ $$\begin{array} { | l | l | l | } \hline \text { SECURITY } & \text { PROBABILITY } & \text { PAYOFF } \\\hline \text { Beta } & 0.50 & 400 \\\hline & 0.49 & 150 \\\hline & 0.0025 & - 300 \\\hline & 0.0075 & - 3,300 \\\hline\end{array}$$ $$\begin{array} { | l | l | l | } \hline \text { SECURITY } & \text { PROBABILITY } & \text { PAYOFF } \\\hline \text { Gamma } & 0.49 & 400 \\\hline & 0.49 & 150 \\\hline & 0.01 & - 150 \\\hline & 0.01 & - 2,000 \\\hline\end{array}$$
-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
• E)none of the above

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