Homework Answers
Risk is positively related to expected return as greater the risk, greater the return expected. So, the answer to the question is option C.
Probability of getting well paid job in an investment bank (P1) = 0.2
Probability of not getting well paid job in an investment bank (P2) = 1-0.2 = 0.8
Salary in an investment bank (S1) = $300,000 per year
Salary in a food outlet (S2) = $40,000 per year
Expected Value E(X) = 0.2*(300,000) + 0.8*(40,000) = 92,000
Variance (V) = ((S1-E(X))^2)*P1 + ((S2-E(X))^2)*P2
= ((300,000-92,000)^2)*0.2 + ((40,000-92,000)^2)*0.8
= 8652800000 + 2163200000
= 10816000000
Standard Deviation (SD) = V^0.5
= (10816000000)^0.5
= 1,04,000
Answer is Option A.
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