You are considering three investments, each with the same expected value and each with two possible payoffs. The investments are sold only in increments of $500. You have $1,000 to invest and so you have the option of either splitting your money equally between two of the investments or placing all $1,000 in one of the investments. If the payoffs from investment A are independent of the payoffs from investments B and C and the payoffs from B and C are perfectly negatively correlated with each other (meaning when B pays off, C doesn’t and vice versa), which investment strategy will minimize your risk?
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