Question: Stock A always alternated between + 20% and -10% in the past. Stock B earned 4.5% per annum. 1. What was the average rate of

Stock A always alternated between + 20% and -10% in the past. Stock B earned 4.5% per annum.

1. What was the average rate of return for stock A?

2. What was the average rate of return for stock B?

3.On a 1-year basis, would a risk-neutral investor prefer+20% or -10% with equal probability, or 4.5% for sure?

4.How much would each dollar invested 10 years ago in stock A have earned?

5.How much would each dollar invested 10 years ago in stock B have earned?

6. What is going on here?

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