You have $1,000 in your savings bank account and want to utilize that money. You realize...

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You have $1,000 in your savings bank account and want to utilize that money. You realize that there are three options: (i) invest in high risk high gain stocks, (ii) invest in a no risk and no gain stock, and (iii) keep the money in the bank account. Following table shows you your portfolio amount after a year. Alternative High risk stock Low risk stock Keep in bank 1,000 You know that the probability of a low market volatility is P and a high market volatility is (1-P). You took DSCI 300 in school and now decided to compute an opportunity loss table. P has a value between 0 and 1. Part a) What are the EOLS for the three options in terms of P and (1-P)? (Hint: compute the opportunity loss table from the payoff table) (6 points) 39,000 30,000 Part b) In the below graph, compute P1 and P2 from the EOL equations. (6 points) EOL (keep) 21,000 3,000 Low market volatility 40,000 10,000 1,000 EOL 0 P1 High market volatility -20,000 -2,000 EOL (High risk) EOL (low risk) You have $1,000 in your savings bank account and want to utilize that money. You realize that there are three options: (i) invest in high risk high gain stocks, (ii) invest in a no risk and no gain stock, and (iii) keep the money in the bank account. Following table shows you your portfolio amount after a year. Alternative High risk stock Low risk stock Keep in bank 1,000 You know that the probability of a low market volatility is P and a high market volatility is (1-P). You took DSCI 300 in school and now decided to compute an opportunity loss table. P has a value between 0 and 1. Part a) What are the EOLS for the three options in terms of P and (1-P)? (Hint: compute the opportunity loss table from the payoff table) (6 points) 39,000 30,000 Part b) In the below graph, compute P1 and P2 from the EOL equations. (6 points) EOL (keep) 21,000 3,000 Low market volatility 40,000 10,000 1,000 EOL 0 P1 High market volatility -20,000 -2,000 EOL (High risk) EOL (low risk)

Answer rating: 100% (QA)

From the provided information the Expected Opportunity Loss EOL can be found for each option by taking the weighted average of the outcomes based on t... View the full answer