Module $3$: Chapter $8$ Homework

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$ million

b$.$ Would you take the sure $$0\mathrm{.}5$ million or the gamble?

c$.$ If vou chose the sure $$0\mathrm{.}5$ million, would that indicate that you are a risk averter or a risk seeker? a common stock that has a $50-50$ chance of being worthless or worth $$1,150,000$ at the end of the year.

The expected profit on the T$-$bond investment is $$27,500.$ What is the expected dollar profit on the stock investment? Round your answer to the nearest dollar. $ $\%$

Would you invest in the bond or stock? $-$Select$-$

rate of return$)$ have to be on the stock investment to make you invest in the stock, given the $5\mathrm{.}5\%$ return on the bond? Round your answere number. If no exact answer can be obtained, enter $0.$

$\%$ these stocks has the same return characteristics as the one stock$-$that is$,$ a $50-50$ chance of being worth zero or $$11,500$ at year$-$end.

I. 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.

The situation would be unchanged.

Would the correlation between returns on these stocks matter?

$-$Select$-$

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