You are asked to compare the following probability distributions of cash flows:
- A versus B:
|
Cash flow A |
Cash flow B |
||||
|
Payoffs |
$7 |
$9 |
$2 |
$5 |
$8 |
|
Probability |
½ |
½ |
1/6 |
1/3 |
1/2 |
- C versus D:
|
Cash flow C |
Cash flow D |
|||||
|
Payoffs |
$10 |
$30 |
$50 |
$11 |
$21 |
$60 |
|
Probability |
1/3 |
1/3 |
1/3 |
1/2 |
1/3 |
1/6 |
- E versus F:
|
Cash flow E |
Cash flow F |
|||||
|
Payoffs |
$10 |
$30 |
50 |
$20 |
$40 |
$60 |
|
Probability |
1/3 |
1/3 |
1/3 |
1/2 |
1/3 |
1/6 |
What comparisons can you make in each case, and why?