Below Are Two Examples of Tossing Two Coins Simultaneously, with the Following

question 187

Multiple Choice

Below are two examples of tossing two coins simultaneously, with the following probability distribution of returns: EXAMPLE #1 (Two coins tossed simultaneously)
Head + head yields 40% gain
Head + tail yields 10% gain
Tail + head yields 10% gain
Tail + tail yields 20% loss
EXAMPLE #2 (Two coins tossed simultaneously)
Head + head yields 70% gain
Head + tail yields 10% gain
Tail + head yields 10% gain
Tail + tail yields 50% loss
From the two examples, which of the following statements is true?

• A) example 1 has a higher expected return, but also has higher risk
• B) example 2 has a higher expected return, but also has higher risk
• C) example 2 has a lower expected return, but also has higher risk
• D) the examples have the same expected returns and example 2 has higher risk

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Definitions:

Inverse Supply

A concept that illustrates how the quantity of goods supplied by producers decreases as the price decreases, typically represented by an upward sloping curve in economics.

Tax

A compulsory financial charge or other levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures.

Demand Curve

A graphical representation showing the relationship between the price of a good or service and the quantity demanded by consumers at various prices.

Supply Curve

A graphical representation of the relationship between the price of a good and the amount of it that producers are willing to supply.