Homework SourseInvestment advisors recommend risk reduction through interna
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% |
Solution
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
