Problem 8 A person wants to invest in a stock. He has two to decide from. The tw

Question

Problem 8 A person wants to invest in a stock. He has two to decide from. The two distributions gives the probability of making X amount from the stock for the 2 separate stocks. To determine the best stock, he decides to invest in the one with the highest expected profit. Which one would he choose? Stock A Stock B 2500 0.3 5000 2000 2000 0.05 2000 1000 p(X 0.2 0.5 P(X 0.5 0.45 Problem 9 The frequency table gives the number of television sets in a small town. Find the mean and standard deviation for the number of television sets. In addition, create a histogram and comment on the pattern Televisions 0 2 Households 26 442 728 1404 0.6 0.5 0.4 0.3 0.2 0.1

Explanation / Answer

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8)

Expected profit (EP) for stock A:

EP = 5000 * 0.2 + 2000 *0.5 - 2500 * 0.3

EP = 1250

Expected profit (EP) for stock B:

EP = 2000 * 0.5 + 1000 *0.45 - 2000 * 0.05

EP = 1350

Invest in stock B

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