A marketing research firm suggests to a company that two possible competing products can generate incomes X and Y (in millions) that are N(3, 1) and N(3.5, 4), respectively. Clearly, P(X < Y) > 1/2. However, the company would prefer the one with the smaller variance if, in fact, P(X > 2) > P(Y > 2). Which product does the company select?
FundamentalsofFinance Weekonenotes ChapterOne:FinanceandtheFirm • Threefieldswithinfinance o Management o Marketsandinstitutions(banks) o Investments BalanceSheet Assets Liability Equity • Liabilitiesandequityarethesourceoffundsforafirm • Assetsarehowfundsareused • Liabilitiesaredebts • Equityisanownershipclaim • Financialmanagementdepartmentsanalyzenumberstomakedecisions o Capitalbudgeting § Dealswithinvestmentsinlongtermassets • i.e.anewplantformanufacturing o Capitalstructureandpolicy