Question: Suppose that a security costs $ 3 , 0 0 0 today and pays off some amount b in one year. Further, suppose that b
Suppose that a security costs $ today and pays off some amount in one year. Further, suppose that is uncertain according to the following table of probabilities:
tableProbability:$$$$$
a Calculate the retum in percent for each value of bNote: You may just calculate the total retum and not worry about how this is split up between current yield and capitalgains yieldTotal Point:
b Calculate the expected retum. Show your work. Total Point:
c Calculate the standard deviations of the return. Show your work. Total Point:
d Suppose that an investor has a choice between buying this security or purchasing a different security that also costs $ today but pays off $ with certainty in one year. Explain in words, how an investor's choice of which security to purchase related to his degree of risk aversion in this example.
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