Suppose you have $9,000.00 and want to invest it. The final amount of money you receive...

  

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Suppose you have $9,000.00 and want to invest it. The final amount of money you receive depends on your investment decisions and on future scenarios which are unknown to you. You have two investment options, option 1 and option 2, and there are two possible scenarios that can happen, scenario A or scenario B. Option 1 would give you a return of $8.00 per dollar invested in scenario A and $0.00 per dollar invested in scenario B. Option 2 would give you $0.00 in scenario A and $8.00 in scenario B. The two scenarios are equally likely. 1st attempt Part 1 (0.3 point) Suppose your utility function over the final amount of money you have is u(m) = In m. Which of the following statements is true? Choose one: O A. Investing half of the money in Option 1 and half of the money in Option 2 is better than investing all the money in one of the two options. O B. Investing half of the money in Option 1 and half of the money in Option 2 is better than investing all the money in Option 1, but worse than investing all the money in Option 2. C. Investing half of the money in Option 1 and half of the money in Option 2 is better than investing all the money in Option 2, but worse than investing all the money in Option 1. O D. Investing half of the money in Option 1 and half of the money in Option 2 is worse than investing all the money in one of the two options. See Hint O E. Investing half of the money in Option 1 and half of the money in Option 2 is equivalent to investing all the money in one of the two options. Part 2 (0.3 point) Now suppose your utility for the final amount of money you have is u(m) = m. Which of the following statements is true? Choose one: ⒸA. You would prefer to diversify your risk. OB. You would strictly prefer to invest all your money in Option 1. O C. You would strictly prefer to invest all your money in Option 2. O D. You would strictly prefer to invest all your money in either of the two options. O E. You would be indifferent between diversifying the investment or investing all the money in one of the two options. Part 3 (0.3 point) When would you always choose to invest all your money in one of the two options? Choose one or more: if you were risk loving if you had more money to invest if the high return for both options increased from $8.00 to $11.00 You would never choose to invest all your money in one of the two options. See Hint See Hint Suppose you have $9,000.00 and want to invest it. The final amount of money you receive depends on your investment decisions and on future scenarios which are unknown to you. You have two investment options, option 1 and option 2, and there are two possible scenarios that can happen, scenario A or scenario B. Option 1 would give you a return of $8.00 per dollar invested in scenario A and $0.00 per dollar invested in scenario B. Option 2 would give you $0.00 in scenario A and $8.00 in scenario B. The two scenarios are equally likely. 1st attempt Part 1 (0.3 point) Suppose your utility function over the final amount of money you have is u(m) = In m. Which of the following statements is true? Choose one: O A. Investing half of the money in Option 1 and half of the money in Option 2 is better than investing all the money in one of the two options. O B. Investing half of the money in Option 1 and half of the money in Option 2 is better than investing all the money in Option 1, but worse than investing all the money in Option 2. C. Investing half of the money in Option 1 and half of the money in Option 2 is better than investing all the money in Option 2, but worse than investing all the money in Option 1. O D. Investing half of the money in Option 1 and half of the money in Option 2 is worse than investing all the money in one of the two options. See Hint O E. Investing half of the money in Option 1 and half of the money in Option 2 is equivalent to investing all the money in one of the two options. Part 2 (0.3 point) Now suppose your utility for the final amount of money you have is u(m) = m. Which of the following statements is true? Choose one: ⒸA. You would prefer to diversify your risk. OB. You would strictly prefer to invest all your money in Option 1. O C. You would strictly prefer to invest all your money in Option 2. O D. You would strictly prefer to invest all your money in either of the two options. O E. You would be indifferent between diversifying the investment or investing all the money in one of the two options. Part 3 (0.3 point) When would you always choose to invest all your money in one of the two options? Choose one or more: if you were risk loving if you had more money to invest if the high return for both options increased from $8.00 to $11.00 You would never choose to invest all your money in one of the two options. See Hint See Hint

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Part 1 03 point Suppose your utility function over the final amount of money you have is um In m C I... View the full answer