Investment advisors recommend risk reduction through international diversificati

Question

Investment advisors recommend risk reduction through international diversification. International investing allows you to take advantage of the potential for growth in foreign economies, particularly in emerging markets. Janice Wong is considering investment in either Europe or Asia. She has studied these markets and believes that both markets will be influenced by the U.S. economy, which has a 16% chance for being good, a 47% chance for being fair, and a 37% chance for being poor. Probability distributions of the returns for these markets are given in the accompanying table.

Find the expected value and the standard deviation of returns in Europe and Asia. (Round your intermediate calculations to 4 decimal places and final answers to 2 decimal places.)

Investment in Europe

Investment in Asia

State of the
U.S. Economy Returns
in Europe Returns
in Asia Good 15%          25%         Fair 5%          9%         Poor 10%          10%        

Explanation / Answer

a) expected value =

EUROPE ASIA

good = 16%* 15% =0.16*0.15 = 0.024 GOOD = 16%*25% = 0.16*0.15 = 0.024

fair = 47% * 5% = 0.47*0.05=0.023 FAIR = 47%9% = 0.47*0.09=0.0423

POOR= 10%*37%= 0.037 POOR = 10%*37% = 0.037

B)SHE WILL PICK ASIA FOR INVESTMENT AS IT SUCURES A PROBABILITY OF HIGH RETURN FROM ABOVE AS 0.0423

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.