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Answer:
Risk and Return
1. Joe is an average investor. His financial advisor gave him options of investing in stock A, with a σ of 12%, and stock B, with a σ of 9%. Both stocks have the same expected return of 16%. Joe can pick only one stock and decides to invest in stock B.
Good Financial Decision?
Yes
No
2. Marcie works for an educational technology firm that recently launched its employee stock option plan (ESOP). Marcie allocated all her investments in the ESOP.
Good Financial Decision?
Yes
No
3. rin wants to invest in a hedge fund that has had a very strong performance track record. The hedge fund has given its investors a return of over 60% for the past five years. Although Erin is tempted to put her money in the fund, she decides to conduct due diligence on the hedge fund’s assets, because she is aware that past performance is no guarantee of future results.
Good Financial Decision?
Yes
No
Explanation:
1. Joe's decision to invest in stock B is a good financial decision. Since both investments have the same returns, the decision on which investment to take shifts to the standard deviation of the returns, which specifies the variability of the returns. Invariably, the investment with less standard deviation should win the vote. Therefore, Joe's decision is a good financial decision because investment in B has a standard deviation of 9% unlike A's 12%.
2. Putting all eggs in one market as Marcie had done by allocating all her investments in the ESOP is not a good financial decision, theoretically. It is always best to spread the risks, though higher-yielding investments (returns) bear higher risks.
3. The decision of Erin to conduct due diligence on the hedge fund's assets, despite its past performance is a good financial decision. Due diligence reveals some behind-the-scene information that are instrumental in making sound business decisions. Who are the present managers of the fund? What systems are in place in the entity to guarantee similar future performance, all things being equal? What market's sentiments and information are available for consideration? These questions, and many others can be answered through a due diligence. Surely, "past performance is no guarantee of future results."
Answer:
(a) The probability that the order will include a soft drink and no fries is 0.45.
(b) The probability that the order will include a hamburger and fries is 0.48.
Explanation:
Let the events be denoted as follows:
S = an order of soft drink
H = an order of hamburger
F = an order of french fries.
Given:
P (S) = 0.90
P (H) = 0.60
P (F) = 0.50
(a)
It is provided that the event of ordering a soft drink and fries are independent.
If events A and B are independent then the probability of event (A ∩ B) is:
Compute the probability that the order will include a soft drink and no fries as follows:
![P(S\cap \bar F)=P(S)\times P(\bar F)\\=P(S)\times[1-P(F)]\\=0.90\times (1-0.50)\\=0.45](https://tex.z-dn.net/?f=P%28S%5Ccap%20%5Cbar%20F%29%3DP%28S%29%5Ctimes%20P%28%5Cbar%20F%29%5C%5C%3DP%28S%29%5Ctimes%5B1-P%28F%29%5D%5C%5C%3D0.90%5Ctimes%20%281-0.50%29%5C%5C%3D0.45)
Thus, the probability that the order will include a soft drink and no fries is 0.45.
(b)
It is provided that the conditional probability that a customer will order fries given that he/she has already ordered a hamburger as, P (F|H) = 0.80.
The conditional probability of an event B given another event A has already occurred is:
Compute the probability that the order will include a hamburger and fries as follows:
Thus, the probability that the order will include a hamburger and fries is 0.48.
Answer:
cannot be provided to one person without making it available to others as well.
Explanation:
A public good is a good that is non excludable and non rivalrous. It cannot be provided to one person without making it available to others as well. If one person is using it, it does not stop other people from using it also. An example of a public good is roads.
Public goods contrasts with club goods and private goods
A club good is a type of public good. It is excludable but non-rivalrous. For example paid streaming services are an example of a club good. Those who do not subscribe are excluded from using the service. But all subscribers have equal assess to the service
A private good is a good that is excludable and rivalrous.e.g. a privately owned car
Answer:
Journal entry on February 1:
Debit Prepaid Insurance $729,600
Credit Cash $729,600
Annual adjusting entry on June 30:
Debit Insurance Expense $152,000
Credits Prepaid Insurance $152,000
Explanation:
On February 1, Procter & Gamble (P&G) paid $729,600 in advance for 2 years’ insurance coverage. The company records the insurance as the prepaid Insurance:
Debit Prepaid Insurance $729,600
Credit Cash $729,600
On Jun 30, the last day of the following 5 months, the company records an adjusting entry that Credits Prepaid Insurance for $152,000 ($729,600 divided by 24 months times the 5 months that will be prepaid as of Jun 30) and Debits Insurance Expense for $152,000
Debit Insurance Expense $152,000
Credits Prepaid Insurance $152,000
