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:

Revenue Variance

The difference between actual revenue and budgeted or forecasted revenue.

Activity Level

A measure of the volume of production or services activity within a company, often used to allocate variable costs.

Revenue Variance

The difference between the actual revenue earned and the budgeted or expected revenue, indicating the effectiveness of sales strategies and market conditions.

Activity Level

A measure of the amount of work performed or units produced, used often in costing to allocate fixed costs properly.