Problem 3 There are three investments, B1, B2 and B3. All of them have the same...

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Problem 3 There are three investments, B1, B2 and B3. All of them have the same expected value and each with two possible payoffs. The payoffs from investment B are independent from payoffs from B2 and B3. The payoffs from B2 and B3 are perfectly negatively correlated, which means that when B2 has a high payoff, B3 has a low payoff, and vice versa. An investor has only $800 to invest. Find the investment strategy that minimizes the risk. Hint: It may be easier to think of the following situation. Let events F and G be independent. The following is given: Payoff from investing $100 in either B or B3 Cases event F happens B2 B3 Probability $100 $140 0.5 event F does not happen $140 $100 0.5 and Cases Payoff from investing $100 in B event G happens B1 Probability $100 0.5 event G does not happen $140 0.5 Problem 3 There are three investments, B1, B2 and B3. All of them have the same expected value and each with two possible payoffs. The payoffs from investment B are independent from payoffs from B2 and B3. The payoffs from B2 and B3 are perfectly negatively correlated, which means that when B2 has a high payoff, B3 has a low payoff, and vice versa. An investor has only $800 to invest. Find the investment strategy that minimizes the risk. Hint: It may be easier to think of the following situation. Let events F and G be independent. The following is given: Payoff from investing $100 in either B or B3 Cases event F happens B2 B3 Probability $100 $140 0.5 event F does not happen $140 $100 0.5 and Cases Payoff from investing $100 in B event G happens B1 Probability $100 0.5 event G does not happen $140 0.5