13. Consider the following two investment alternatives: First, a risky portfolio that pays a 18% rate...

13. Consider the following two investment alternatives: First, a risky portfolio that pays a 18% rate of return with a probability of 22% or a 7.2% rate of return with a probability of 40%. Second, a Treasury bill that pays 3.4%. If you invest $100,000 in the risky portfolio, your expected profit after one year would be ________.

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Expert Solution

Expected Return for risky portfolio = 18%(0.22) + 7.2%(0.4)

= 6.84%

If investor invest $100000 in risky portfolio, he will get expected return of 6.84%, hence he will earn profit of $6840

jeff jeffy answered 2 years ago

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