TABLE 17-2
The following payoff matrix is given in dollars.
$\quad $ $\quad $ $\quad $ $\quad $ $\text {Action }$
$\begin{array} { c c c }
\text { Event }& A & B \
\hline1 & 400 & 700 \
2 & 200 & 500
\end{array}$
Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Table 17-2, what is the return to risk ratio for Action B?
A) 3.0
B) 9.0
C) 0.167
D) 6.0

Question

TABLE 17-2 
 The following payoff matrix is given in dollars.
 $\quad $ $\quad $ $\quad $ $\quad $ $\text {Action }$
$\begin{array} { c c c } 
\text { Event }& A  & B \
\hline1 & 400 & 700 \
2 & 200 & 500
\end{array}$
Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Table 17-2, what is the return to risk ratio for Action B?
A) 3.0
B) 9.0
C) 0.167
D) 6.0

Quizplus · Accepted Answer

The return to risk ratio is calculated as the expected return divided by the standard deviation. For Action B, the expected return is (0.5 * 700) + (0.5 * 500) = 600. The standard deviation is calculated as sqrt(0.5 * (700 - 600)^2 + 0.5 * (500 - 600)^2) = 100. The return to risk ratio is 600 / 100 = 6.0.

TABLE 17-2 the Following Payoff Matrix Is Given \quad

TABLE 17-2
the Following Payoff Matrix Is Given $\quad$