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:

  1. Identify the value of each investment.
  2. Compare and discuss the investments.
  3. Calculate the expected value and return for all possible portfolios for the available capital.\
  4. Propose the best portfolio for your client and discuss.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related General Management Questions!