Question

y Question Completion Status: QUESTION 16 5 points Tom West is evaluating investment alternatives for money he won in the NC Lottery. His investment advisor has identified several altenatives and constructed the following table which shows expected profits for various market conditions and their probabilities. If he decides to invest in Bonds, what is his expected return? Market Condhtion Investment Bul Neutral (3) Bear i T-Bills Bonds ,000S400,00O IS300,000 $130,000 $163,000 $78,000 $81,000 QUESTION 17 5 points Save Arawor Copy of Tom West is evaluating investment alternatives for money he won in the NC Lottery. His investment advisor has identified several alternatives and constructed the following table which shows expected profits for various market conditions and their probabilities. If he decides to invest in Stocks, what is his expected return? Market Condition Investment $30,000 $30,000 S30,000 0,000 SI10.000 S300.000 150.000| $400,000 300,000 Bonds Click Save and Submit to saxe and submit. Click Save All Ansuvers to save all ansuers Save All Answers Close Window Save and Submit

Answer 1

16.

The formula to find the expected value is,

E(z) = 〉 x * P(z)

where x - Expected profit and P(x) is the probability corresponding to it.

The probabilities for the three conditions that is Bull is 0.5, for neutral is 0.3 and for Bear is 0.2

Investments in Bonds have profits are $150,000, $400,000 and -$300,000

E(z) 〉 * P(z) = 150000 * 0.5 + 400000 * 0.3 + (-300000) * 0.2

The expected return is $135,000

Last option is correct.

17.
The expected value to invest in stocks is
E(x) = 150000*0.5 + 110000*0.3 + (-300000)*0.2 = 78000

The expected return is $78000