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Suppose the​ risk-free interest rate is 5%​, and the stock market will return either be +21%...

Suppose the​ risk-free interest rate is 5%​, and the stock market will return either be +21% or −10% each​ year, with each outcome equally likely. Compare the following two investment​ strategies: (1) invest for one year in the​ risk-free investment, and one year in the​ market, or​ (2) invest for both years in the market.

a. Which strategy has the highest expected final​ payoff?

b. Which strategy has the highest standard deviation for the final​ payoff?

c. Does holding stocks for a longer period decrease your​ risk?

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Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 4 months ago
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