**Scenario 5.2:**

Randy and Samantha are shopping for new cars (one each). Randy expects to pay $15,000 with 1/5 probability and $20,000 with 4/5 probability. Samantha expects to pay $12,000 with 1/4 probability and $20,000 with 3/4 probability.

3) Refer to Scenario 5.2. Which of the following is true?

- A) Randy has a higher expected expense than Samantha for the car.
- B) Randy has a lower expected expense than Samantha for the car.
- C) Randy and Samantha have the same expected expense for the car, and it is somewhat less than $20,000.
- D) Randy and Samantha have the same expected expense for the car: $20,000.
- E) It is not possible to calculate the expected expense for the car until the true probabilities are known.

Answer: A

Diff: 1

Section: 5.1

4) Refer to Scenario 5.2. Randy’s expected expense for his car is

- A) $20,000.
- B) $19,000.
- C) $18,000.
- D) $17,500.
- E) $15,000.

Answer: B

Diff: 1

Section: 5.1

5) Refer to Scenario 5.2. Samantha’s expected expense for her car is

- A) $20,000.
- B) $19,000.
- C) $18,000.
- D) $17,500.
- E) $15,000.

Answer: C

Diff: 1

Section: 5.1

Consider the following information about job opportunities for new college graduates in Megalopolis:

** Table 5.1**

**MajorProbability of Receiving**

**an Offer in One Year**

**Average Salary Offer**Accounting.95$25,000Economics.90$30,000English.70$24,000Poli Sci.60$18,000Mathematics1.00$21,000

6) Refer to Table 5.1. Expected income for the first year is

- A) highest in accounting.
- B) highest in mathematics.
- C) higher in English than in mathematics.
- D) higher in political science than in economics.
- E) highest in economics.

Answer: E

Diff: 1

Section: 5.1

7) Refer to Table 5.1. Ranked highest to lowest in expected income, the majors are

- A) economics, accounting, English, mathematics, political science.
- B) mathematics, English, political science, accounting, economics.
- C) economics, accounting, mathematics, English, political science.
- D) English, economics, mathematics, accounting, political science.
- E) accounting, English, mathematics, political science, economics.

Answer: C

Diff: 1

Section: 5.1

**Scenario 5.3:**

Wanting to invest in the computer games industry, you select Whizbo, Yowzo and Zowiebo as the three best firms. Over the past 10 years, the three firms have had good years and bad years. The following table shows their performance:

**CompanyGood Year RevenueBad Year RevenueNumber of Good Years**Whizbo$8 million$6 million8Yowzo$10 million$4 million4Zowiebo$30 million$1 million1

8) Refer to Scenario 5.3. Where is the highest expected revenue, based on the 10 years’ past performance?

- A) Whizbo
- B) Yowzo
- C) Zowiebo
- D) Whizbo and Yowzo
- E) Yowzo and Zowiebo

Answer: A

Diff: 1

Section: 5.1

9) Refer to Scenario 5.3. Based on the 10 years’ past performance, what is the probability of a good year for Zowiebo?

- A) 30/31
- B) 1/31
- C) 0.9
- D) 0.1

Answer: D

Diff: 1

Section: 5.1

10) Refer to Scenario 5.3. Based on the 10 years’ past performance, rank the companies’ expected revenue, highest to lowest:

- A) Whizbo, Yowzo, Zowiebo
- B) Whizbo, Zowiebo, Yowzo
- C) Zowiebo, Yowzo, Whizbo
- D) Zowiebo, Whizbo, Yowzo
- E) Zowiebo, with Whizbo and Yowzo tied for second

Answer: A

Diff: 1

Section: 5.1

11) Refer to Scenario 5.3. The expected revenue from all three companies combined is

- A) $11 million
- B) $17.9 million.
- C) $25.5 million.
- D) $29.5 million.
- E) $48 million.

Answer: B

Diff: 1

Section: 5.1

The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict.

** Table 5.3**

**Outcome 1Outcome 2**Job ChoiceProb.IncomeProb.IncomeWork for HMO0.95$100,0000.05$60,000Own practice0.2$250,0000.8$30,000Research0.1$500,0000.9$50,000

12) Refer to Table 5.3. The expected returns are highest for the physician who

- A) works for an HMO.
- B) opens her own practice.
- C) does research.
- D) either opens her own practice or does research.
- E) either works for an HMO or does research.

Answer: A

Diff: 1

Section: 5.1

13) Refer to Table 5.3. Rank the doctor’s job options in expected income order, highest first.

- A) Work for HMO, open own practice, do research.
- B) Work for HMO, do research, open own practice.
- C) Do research, open own practice, work for HMO.
- D) Do research, work for HMO, open own practice.
- E) Open own practice, work for HMO, do research.

Answer: B

Diff: 1

Section: 5.1

14) In Table 5.3, the standard deviation is

- A) highest for the HMO choice, and it is $76,000.
- B) lowest for the HMO choice.
- C) higher for owning one’s own practice than for going into research.
- D) higher for the HMO choice than for going into research.

Answer: B

Diff: 2

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