Attempts Average/9 18. Problem 8.18 (Expected Returns) ook Suppose you won the lottery and had two options: (1) receiving $0.2 million or (2) taking a gamble in which, at the flip of a coin, you receive $0.4 million if a hand comes up but receive zero if a tall comes up. a. What is the expected value of the gamble? Enter your answer in millions. For example, an answer of $500,000 should be entered as 0.5. Round your answer to one decimal place million b. Would you take the sure $0.2 million or the gamble? Select c. If you chose the sure $0.2 million, would that indicate that you are a ruk averter or a risk seeker? 5 d. Suppose the payoff was actually $0.2 milion - that was the only choice. You now face the choice of Investing it in a U.S. Treasury bond that will return 1210,000 at the end of a year or a common stock that has a 50-50 chance of being worthless or worth $440,000 at the end of the year. 1. The expected profile on the T-bond investment is $10,000. What is the expected dollar profit on the stock Investmene? Round your answer to the nearest dollar 2. The expected rate of return on the T-bond Investment is 5%. What is the expected rate of retum on the stock Investment? Round your answer to the nearest whole number 3. Would you invest in the bond or stock? siect 4. Exactly how large would the expected prot (or the expected rate of return) have to be on the stock Investment to make you invest in the stock, given the return on the band? Round your answer to the nearest whole number. If no exact answer can be obtained, anter 5. How might your decision be affected, rather than buying one stock for $0.2 million, you could construct a portfolio consisting of 100 stocks with $2,000 invested in each Each of these stocks has the same return characteristics as the one stock - that is, a 50-50 chance of being worth zero OF $4,400 at year and 1. Investing in a portfolio of stocks would definitely be a deterioration over investing in the single stock. II. Investing in a portfolio of stocks would definitely be an improvement over investing in the single stock. II. The situation would be unchanged. would the correlation between returns on these stoc matter