If a payoff is equally likely to be $1,$2,$3,$4,or $5,the square of the standard deviation is:
A) 0.
B) 2.
C) 4.
D) 10.
E) 100.

Question

Quizplus · Accepted Answer

The standard deviation squared is the variance. To find the variance, we first calculate the mean (average) of the payoffs: (1+2+3+4+5)/5 = 15/5 = 3. Then, we calculate the variance by finding the average of the squared differences from the mean: [(1-3)^2 + (2-3)^2 + (3-3)^2 + (4-3)^2 + (5-3)^2] / 5 = [4 + 1 + 0 + 1 + 4] / 5 = 10 / 5 = 2.

If a Payoff Is Equally Likely to Be $1,$2,$3,$4,or $5,the