Question: You work as a risk management consultant. Your client has 2,000,000 euro to invest. Each investment has an initial capital and three possible scenarios of
You work as a risk management consultant. Your client has 2,000,000 euro to invest. Each investment has an initial capital and three possible scenarios of success (high, medium, low) with their probabilities and return rates as follows:
Investment A: Capital: 1,000,000.00 euros.
| Probability | Return | |
| High scenario | 20% | 20% |
| Medium scenario | 60% | 15% |
| Low scenario | 20% | -10% |
Investment B: Capital: 750,000.00 euros.
| Probability | Return | |
| High scenario | 25% | 20% |
| Medium scenario | 40% | 35% |
| Low scenario | 65% | -30% |
Investment C: Capital: 500,000.00 euros
| Probability | Return | |
| High scenario | 30% | 20% |
| Medium scenario | 45% | 25% |
| Low scenario | 30% | -20% |
Each investment is independent from each other and can be used as many times as required. No other investments are available.
You have to complete the following tasks:
- Identify the value of each investment.
- Compare and discuss the investments.
- Calculate the expected value and return for all possible portfolios for the available capital.\
- Propose the best portfolio for your client and discuss.
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