1. Mr. Smart needs to make a decision on investing on one stock from two potential...

 

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1. Mr. Smart needs to make a decision on investing on one stock from two potential stocks in the market. To make this decision, Mr. Smart collects the return rates of the two stocks in the past 7 years (refer to Table 1 for the data). Table 1 Stock 1 120% Stock 2 80% 90% 120% 110% 135% 130% 150% 100% 160% 140% 105% 150% 90% If Mr. Smart has a conservative strategy, i.e., he is sensitive to the "bad" case in which the return rate 90%, he needs to choose the better stock based on the comparison of the probability of the bad case. How can you do an analysis to help Mr. Smart with this decision? 1. Mr. Smart needs to make a decision on investing on one stock from two potential stocks in the market. To make this decision, Mr. Smart collects the return rates of the two stocks in the past 7 years (refer to Table 1 for the data). Table 1 Stock 1 120% Stock 2 80% 90% 120% 110% 135% 130% 150% 100% 160% 140% 105% 150% 90% If Mr. Smart has a conservative strategy, i.e., he is sensitive to the "bad" case in which the return rate 90%, he needs to choose the better stock based on the comparison of the probability of the bad case. How can you do an analysis to help Mr. Smart with this decision?

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Answer Conclusion Based on the analysis Stock 1 has a lower probability of the bad case compared to ... View the full answer