A risk-averse investor has an opportunity to invest in the following securities: Security A costs $10...
A risk-averse investor has an opportunity to invest in the following securities: Security A costs $10 today and will have a value of $25 if the market goes up and $0 if the market goes down; Security B costs $8 today and will have a value of $12 if the market goes up and $6 if the market goes down; and Security C costs $5 today and will have a value of $20 if the market goes up and –$20 if the market goes down. If there is a 40 percent chance that the market will go up and the risk-free rate is zero, which security(ies) will the investor prefer?
How to calculate the expected return
the answer is B bc it generates positive expected return , but I don't know how to figure it out whether it is positive or negative
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A risk-averse investor has an opportunity to invest in the
following securities: Security A costs $10...
11. Sophie is a highly risk-averse investor. She wants to invest in the following two stocks:...
11. Sophie is a highly risk-averse investor. She wants to invest in the following two stocks: stock A has expected return of 4% and standard deviation of 40%, stock B has expected return of 12% and standard deviation of 30%. The correlation coefficient between the two stocks is (-1), Sophie's friend advises her to invest 50% in stock A and 50% in stock B. Calculate and explain if you agree or disagree with the advice (7 points).
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You have $99,445 to invest in two stocks and the risk-free security. Stock A has an...
You have $99,445 to invest in two stocks and the risk-free security. Stock A has an expected return of 13.34 percent and Stock B has an expected return of 11 percent. You want to own $30,372 of Stock B. The risk-free rate is 3.03 percent and the expected return on the market is 10.49 percent. If you want the portfolio to have an expected return equal to that of the market, how much should you invest (in $) in the...
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Given the following information, which investment(s) would risk-averse investors prefer if the risk-free rate is 5...
Given the following information, which investment(s) would
risk-averse investors prefer if the risk-free rate is 5
percent?
Value of Investment after one year if:
Investment
Cost
Today
Market Return > 0%
Probability: 40%
Market Return < 0%
Probability: 60%
I
$18
$36
$8
II
$14
$12
$16
III
$15
$30
$5
I only
II only
III only
I and II only
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Given the following information, which investment(s) would
risk-averse investors prefer if the risk-free rate is 5
percent?
Value of Investment after one year if:
Investment
Cost
Today
Market Return > 0%
Probability: 40%
Market Return < 0%
Probability: 60%
I
$18
$36
$8
II
$14
$12
$16
III
$15
$30
$5
I only
II only
III only
I and II only
4. Risk aversion Erik is an investor with $5,000 available for investment. He has the following three investment possibilities from which to choose: Option Scenarios Keep the $5,000 in cash for one year. Invest in a friend's business with a 50% chance of getting $10,000 after one year and a 50% chance of getting nothing. Invest in a relative's business with a 30% chance of getting $15,000 after one year, 20% chance of getting $2,500 after one year, 50% chance...
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