QuestionMicro-Pub, Inc. is evaluating two cameras (R and S).
a. Find the rate of return range for both cameras. b. Calculate the expected return for each camera. c. Which camera is riskier and why?
Initial investment: \$4,000 for both. Camera R: Pessimistic 20%, Most likely 25% (0.50), Optimistic 30% (0.25). Camera S: Pessimistic 15% (0.20), Most likely 25% (0.55), Optimistic 35% (0.25).

Studdy Solution

STEP 1

Assumptions1. The initial investment for both cameras is \$4,000. . The rate of return varies and is given with corresponding probabilities.
3. The rate of return is given in three scenarios pessimistic, most likely, and optimistic.
4. The range of the rate of return is the difference between the highest and lowest rates of return.
5. The expected value of return is the sum of the product of each rate of return and its corresponding probability.

STEP 2

First, we need to determine the range for the rate of return for each of the two cameras. The range is the difference between the highest and lowest rates of return.
For camera R, the rates of return are20%,25%, and30%. For camera, the rates of return are15%,25%, and35%.

STEP 3

Calculate the range for camera R.
$Range_R = Highest\, rate - Lowest\, rate$ $Range_R =30\% -20\%$

STEP 4

Calculate the range for camera.
$Range = Highest\, rate - Lowest\, rate$ $Range =35\% -15\%$

STEP 5

Now, we need to determine the expected value of return for each camera. The expected value is the sum of the product of each rate of return and its corresponding probability.
For camera R, the rates of return are20%,25%, and30% with corresponding probabilities of0.25,0.50, and0.25. For camera, the rates of return are15%,25%, and35% with corresponding probabilities of0.20,0.55, and0.25.

STEP 6

Calculate the expected value for camera R.
$Expected\, value_R = \sum (rate \times probability)$ $Expected\, value_R = (20\% \times0.25) + (25\% \times0.50) + (30\% \times0.25)$

STEP 7

Calculate the expected value for camera.
$Expected\, value = \sum (rate \times probability)$ $Expected\, value = (15\% \times0.20) + (25\% \times0.55) + (35\% \times0.25)$

STEP 8

The camera with the larger range of return is considered riskier because it has a wider spread of possible outcomes.
Compare the ranges of camera R and to determine which camera is riskier.

STEP 9

The expected value of return is used to determine which camera has a higher average return. Compare the expected values of camera R and to determine which camera has a higher expected return.

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Studdy Solution

STEP 1

STEP 2

First, we need to determine the range for the rate of return for each of the two cameras. The range is the difference between the highest and lowest rates of return.
For camera R, the rates of return are20%,25%, and30%. For camera, the rates of return are15%,25%, and35%.

STEP 3

Calculate the range for camera R.
$Range_R = Highest\, rate - Lowest\, rate$ $Range_R =30\% -20\%$

STEP 4

Calculate the range for camera.
$Range = Highest\, rate - Lowest\, rate$ $Range =35\% -15\%$

STEP 5

STEP 6

Calculate the expected value for camera R.
$Expected\, value_R = \sum (rate \times probability)$ $Expected\, value_R = (20\% \times0.25) + (25\% \times0.50) + (30\% \times0.25)$

STEP 7

Calculate the expected value for camera.
$Expected\, value = \sum (rate \times probability)$ $Expected\, value = (15\% \times0.20) + (25\% \times0.55) + (35\% \times0.25)$

STEP 8

The camera with the larger range of return is considered riskier because it has a wider spread of possible outcomes.
Compare the ranges of camera R and to determine which camera is riskier.

STEP 9

The expected value of return is used to determine which camera has a higher average return. Compare the expected values of camera R and to determine which camera has a higher expected return.

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Studdy Solution

STEP 1

STEP 2

First, we need to determine the range for the rate of return for each of the two cameras. The range is the difference between the highest and lowest rates of return.For camera R, the rates of return are20%,25%, and30%. For camera, the rates of return are15%,25%, and35%.

STEP 3

Calculate the range for camera R.RangeR=Highest rate−Lowest rateRange_R = Highest\, rate - Lowest\, rateRangeR​=Highestrate−LowestrateRangeR=30%−20%Range_R =30\% -20\%RangeR​=30%−20%

STEP 4

Calculate the range for camera.Range=Highest rate−Lowest rateRange = Highest\, rate - Lowest\, rateRange=Highestrate−LowestrateRange=35%−15%Range =35\% -15\%Range=35%−15%

STEP 5

STEP 6

STEP 7

STEP 8

The camera with the larger range of return is considered riskier because it has a wider spread of possible outcomes.Compare the ranges of camera R and to determine which camera is riskier.

STEP 9

The expected value of return is used to determine which camera has a higher average return. Compare the expected values of camera R and to determine which camera has a higher expected return.

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Studdy solves anything!

Start learning now

Download Studdy AI Tutor now. Learn with ease and get all help you need to be successful at school.

First, we need to determine the range for the rate of return for each of the two cameras. The range is the difference between the highest and lowest rates of return.
For camera R, the rates of return are20%,25%, and30%. For camera, the rates of return are15%,25%, and35%.

Calculate the range for camera R.
$Range_R = Highest\, rate - Lowest\, rate$ $Range_R =30\% -20\%$

Calculate the range for camera.
$Range = Highest\, rate - Lowest\, rate$ $Range =35\% -15\%$

The camera with the larger range of return is considered riskier because it has a wider spread of possible outcomes.
Compare the ranges of camera R and to determine which camera is riskier.