ERT is choosing between two maintenance policies for its vehicles. The outcomes of these policies are difficult to predict and so ERT has run a simu-lation of both. Policy 1 has an expected annual cost of $400,000 per year, with a standard deviation of $80,000. Policy 2 has an expected value of $350,000, with a standard deviation of $150,000.
Which of the following statements are correct?
- Policy 2 is the more risky.
- Policy 1 will always be the more expensive in any given period.
- Policy 2 is the more likely to cost more than $500,000 in any given year.
- Policy 2 has the greater potential upside risk.
- Policy 2 is clearly the better policy.
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