Suppose you have inherited $100,000.00 and face three alternatives: 1. Put the money in an interest-bearing...

   

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Suppose you have inherited $100,000.00 and face three alternatives: 1. Put the money in an interest-bearing account that pays 3% annually. This account is secured against bank failure. 2. Buy common stock with 6% dividend yield. The probability of bankruptcy of the issuing firm is 15%. 3. Hold the money in cash. Which option should you choose if you are risk-neutral? (You neither avoid nor seek risk and only care about the expected return) Suppose you have inherited $100,000.00 and face three alternatives: 1. Put the money in an interest-bearing account that pays 3% annually. This account is secured against bank failure. 2. Buy common stock with 6% dividend yield. The probability of bankruptcy of the issuing firm is 15%. 3. Hold the money in cash. Which option should you choose if you are risk-neutral? (You neither avoid nor seek risk and only care about the expected return)

Answer rating: 100% (QA)

To determine which option to choose if you are riskneutral w... View the full answer