Investment strategy. An investor is considering adding a stock to her portfolio. Assuming she buys 100 shares, here is an estimated payoff table for the alternative stocks if she holds onto them for six months. The value of the stock depends on whether or not an acquisition is approved for one of the companies, since the companies are actually competitors.

She estimates the probability of an acquisition to be 0.3.

a) Compute the EV for each alternative decision.

b) Compute the SD for each decision.

c) Compute the CV and RRR for each decision.

d) Which stock would you choose and why?

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Acquisition? Yes (0.3) No (0.7) Stock A $5000 -$1000 Stock B -$500 $3500