The Barron Big Money Poll asked 131 investment managers across the United States about their short-term investment outlook (Barrons, October 28, 2002). Their responses showed 4% were very bullish, 39% were bullish, 29% were neutral, 21% were bearish, and 7% were very bearish. Let x be the random variablereflecting the level of optimism about the market. Set x 5 for very bullish down through x 1 for very bearish.
a. Develop a probabilitydistribution for the level of optimism of investment managers.
b. Compute the expected value for the level of optimism.
c. Compute the varianceand standard deviationfor the level of optimism.
d. Comment on what your results imply about the level of optimism and its variability.
This solution provides answers in Excel for expected value, variance, and standard deviation.