Assume you have $1000, all of which is invested in a basketball team. Each year there is a 60% chance that the value of the team will increase by 60% and a 40% chance that the value of the team will decrease by 60%.
(A) Estimate the mean and median value of your investment after 100 years.
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(B) Explain the large difference between the estimated mean and median.
What will be an ideal response?
(A)
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Note that the median is obtained from @RISK Detailed Statistics window.
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(B)
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The ending value after 100 years is approximately “zero” a large fraction of the time -- hence the median is approximately 0 -- but the mean is fairly large because of the (occasional) times where the ending investment value is really large.
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