You have $60 and have decided to invest it in the stocks of two companies: Google...

You have $60 and have decided to invest it in the stocks of two companies: Google and Bing. The stock of Google cost $10/share and Bing stock costs $5/share. In one scenario, Google stock will be worth $30 and Bing will be worth $8. In the only other scenario, which is equally likely, Google will be worth $10/share Bing will be worth $12/share. Assuming you are risk averse, which of the following investment options yield the greatest expected utility?

(a) Spend half of your money on Google and half on Bing.

(b) All three of these options are the same.

(c) Spend all your money on Bing stock.

(d) Spend all your money on Google stock.

The correct answer is a) but i'm not sure how to get there.

Expert Solution

Rahul Sunny answered 7 months ago

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