# Question

An investor considers investing $10,000 in the stock market. He believes that the probability is 0.30 that the economy will improve, 0.40 that it will stay the same, and 0.30 that it will deteriorate. Further, if the economy improves, he expects his investment to grow to $15,000, but it can also go down to $8,000 if the economy deteriorates. If the economy stays the same, his investment will stay at $10,000.

a. What is the expected value of his investment?

b. What should the investor do if he is risk neutral?

c. Is the decision clear-cut if he is risk averse? Explain.

a. What is the expected value of his investment?

b. What should the investor do if he is risk neutral?

c. Is the decision clear-cut if he is risk averse? Explain.

## Answer to relevant Questions

On average, there are 12 potholes per mile on a particular stretch of the state highway. Suppose the potholes are distributed evenly on the highway.a. Find the probability of finding fewer than two potholes in a quarter-mile ...Facing the worst economic climate since the dot-com bust in the early 2000s, high-tech companies in the United States search for investment opportunities with cautious optimism (USA TODAY, February 17, 2009). Suppose the ...The cumulative probabilities for a continuous random variable X are P(X ≤ 10) = 0.42 and P(X ≤20) = 0.66. Calculate the following probabilities. a. P(X 20)The arrival time of an elevator in a 12- story dormitory is equally likely at any time range during the next 4 minutes. a. Calculate the expected arrival time. b. What is the probability that an elevator arrives in less than ...The historical returns on a balanced portfolio have had an average return of 8% and a standard deviation of 12%. Assume that returns on this portfolio follow a normal distribution. Use the empirical rule for normal ...Post your question

0