Idaho Slopes (IS) and Dakota Steppes (DS) are both seasonal businesses. IS is a

Question

Idaho Slopes (IS) and Dakota Steppes (DS) are both seasonal businesses. IS is a downhill skiing facility, while DS is a tour company that specializes in walking tours and camping. The equally likely returns on each company over the next year are expected to be:

Economy

IS

DS

Very bad

-10%

2%

Bad

-4%

7%

Average

4%

6%

Good

12%

4%

Very good

20%

4%

What are the expected returns and variances of returns for IS and DS.

Economy

IS

DS

Very bad

-10%

2%

Bad

-4%

7%

Average

4%

6%

Good

12%

4%

Very good

20%

4%

Explanation / Answer

Solution:

Expected Return

Variance

Economy IS DS Very bad -10% 2% Bad -4% 7% Average 4% 6% Good 12% 4% Very Good 20% 4% Sum 22% 23% Expected Return = Sum of Returns / Number of Type of Economy 4.40% 4.60%

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