Reference no: EM13262022

Question 1
You have chosen biology as your college major because you would like to be a medical doctor. However, you find that the probability of being accepted into medical school is about 10 percent. If you are accepted into medical school, then your starting salary when you graduate will be $300,000 per year. However, if you are not accepted, then you would choose to work in a zoo, where you will earn $40,000 per year. Without considering the additional educational years or the time value of money, what is your expected starting salary as well as the standard deviation of that starting salary?

Question 1 options:
Expected Salary $42,000; Std. Deviation $81,000

Expected Salary $54,000; Std. Deviation $78,000

Expected Salary $66,000; Std. Deviation $78,000

None of the above

Question 2
Given the returns and probabilities for the three possible states listed here, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 0.09 and 0.15, respectively.