SCENARIO 19-6
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He
constructed the following payoff table based on the mean amount of time he needed to study every
week for the course and the degree of difficulty of the exam. From the information that he gathered
from students who had taken the course, he concluded that there was a 40% probability that the exam
would be easy. $$\begin{array} { | l | l | l | l | }
\hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \
\hline \text { Easy Exam } & 40 & 60 & 80 \
\hline \text { Difficult Exam } & 100 & 50 & 0 \
\hline
\end{array}$$
-Referring to Scenario 19-6, the optimal strategy using the return-to-risk ratio
criterion is to study 8 hours per week on average for the exam.

Question

SCENARIO 19-6
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He
constructed the following payoff table based on the mean amount of time he needed to study every
week for the course and the degree of difficulty of the exam. From the information that he gathered
from students who had taken the course, he concluded that there was a 40% probability that the exam
would be easy. $$\begin{array} { | l | l | l | l | } 
\hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \
\hline \text { Easy Exam } & 40 & 60 & 80 \
\hline \text { Difficult Exam } & 100 & 50 & 0 \
\hline
\end{array}$$
-Referring to Scenario 19-6, the optimal strategy using the return-to-risk ratio
criterion is to study 8 hours per week on average for the exam.

Quizplus · Accepted Answer

The return-to-risk ratio is calculated by dividing the expected return by the standard deviation of the return. In this case, the expected return is the average of the payoffs, which is (40 * 80 + 60 * 50 + 0 * 0) / 100 = 64. The standard deviation of the return is the square root of the variance, which is [(40 * (80 - 64)^2 + 60 * (50 - 64)^2 + 0 * (0 - 64)^2) / 100] = 16. Therefore, the return-to-risk ratio is 64 / 16 = 4. The optimal strategy is to study 8 hours per week on average for the exam because it has the highest return-to-risk ratio.

SCENARIO 19-6 a Student Wanted to Find Out the Optimal

SCENARIO 19-6
a Student Wanted to Find Out the Optimal