Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c }
\text { States } & A 1 & A 2 & A B \
\hline 1 & 12 & - 2 & 8 \
2 & 4 & 10 & 5
\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3
-Referring to Instruction 17-3,if the probability of S1 is 0.5,then the return to risk (RTRR)ratio for A3 is _______.
A) 0.667
B) 2
C) 1.5
D) 4.333

Question

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
 $$\begin{array} { c c c c } 
\text { States } & A 1 & A 2 & A B \
\hline 1 & 12 & - 2 & 8 \
2 & 4 & 10 & 5
\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3
-Referring to Instruction 17-3,if the probability of S1 is 0.5,then the return to risk (RTRR)ratio for A3 is  _______.
A) 0.667
B) 2
C) 1.5
D) 4.333

Quizplus · Accepted Answer

The Return to Risk Ratio (RTRR) is calculated as the expected return divided by the standard deviation of returns. For A3, the expected return (ER) is calculated as follows: ER = (0.5 * 8) + (0.5 * 5) = 4 + 2.5 = 6.5. The standard deviation (SD) is calculated as the square root of the variance. Variance = 0.5*(8-6.5)^2 + 0.5*(5-6.5)^2 = 0.5*2.25 + 0.5*2.25 = 2.25. SD = sqrt(2.25) = 1.5. RTRR = ER / SD = 6.5 / 1.5 = 4.333.

Instruction 17-3 the Following Payoff Table Shows Profits Associated with a Set

Instruction 17-3
the Following Payoff Table Shows Profits Associated with a Set