options: (1) he can invest in a risk-free savings account with a
guaranteed 3% annual rate of return; (2) he can invest in a fairly
safe stock, where the possible annual rates of return are 6%, 8%,
or 10%; or (3) he can invest in a more risky stock, where the
possible annual rates of return are 1%, 9%, or 17%. The investor
can place all of his available funds in any one of these options,
or he can split his $10,000 into two $5,000 investments in any two
of these options. The joint probability distribution of the
possible return rates for the two stocks is given in the
file P09_34.xlsx.
Use PrecisionTree to identify the
strategy that maximizes the investor's expected one-year
earnings.
- An Investor With 10 000 Available To Invest Has The Following Options 1 He Can Invest In A Risk Free Savings Account 1 (7.65 KiB) Viewed 123 times
investor's expected one-year earnings.
To maximize the expected return, this investor should
invest all funds in risky stock. By
doing so, the expected return is maximized
at $___________.
1 . By doing so, the expected return is maximized at
$__________
Joint probabilities of stock returns Safe stock return (S) S=6% S=8% S=10% Risky stock return (R) R=1% R=9% 0.10 0.05 0.25 0.05 0.10 0.05 R=17% 0.10 0.20 0.10