Suppose we have the following projections on 3 stocks: You have 2 alternatives: Invest equal amounts...

Suppose we have the following projections on 3 stocks:

You have 2 alternatives:

Invest equal amounts in all 3
Invest 50% in Stock A and equal amounts in the other 2

State of the Economy	Probability of State	Return on Stock A	Return on Stock B	Return on Stock C
Boom	40%	10%	15%	20%
Bust	60%	8%	4%	0%

Which of the following is most accurate?

A) Choose Alternative 1 because it has more of Stock C which can yield 20%.

B)Choose Alternative 2 because the expected portfolio return is higher

C) Choose Alternative 1 because its expected portfolio return is higher

D) They are both the same

E) Choose Alternative 2 because it has less of Stock C which provides a 0% return in bad times.

D)

E)

Expert Solution

jeff jeffy answered 1 year ago

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