$8\mathrm{.}18$ Question $-$ Expected Returns

d$.$ Suppose the payoff was actually $$0,5$ million$-$ that was the only choice. You now the face the choice of investing it in U$.$S

Treasury bond that will return $$537\mathrm{.}500$ at the end of a year or a commond stock that has a $50-50$ chance of being worthless $

$1\mathrm{.}150\mathrm{.}000$ at the end of the year.

How might your decision be affected if$,$ rather than buying one stock for $\%0,5$ million, you could construct a portfolio

consisting of $100$ stocks with $$5\mathrm{.}000$ invested in each? Each of these stocks has the same return characteristic as the one stock$-$

that is$,$ a $50-50$ chance of being worth zero or $$11\mathrm{.}500$ at year end. Would the correlation between returns on these stocks

matter? explain