An individual has to choose between investment A and investment B. The individual estimates that the income and probability of the income from each investment are as given in the following table:
Investment A Investment B
Income Probability Income Probability
4000 0.2 4000 0.3
5000 0.3 6000 0.4
6000 0.3 8000 0.3
7000 0.2
(a) Using Excel’s statistical tools, calculate the standard deviation of the distribution of each investment. (b) Which of the two investments is more risky? (c) Which investment should the individual choose?
NOTE: Use table 14-4 as reference, Salvatore, D.
