You have $500 to invest in the stock market and are considering buying shares in Walmart and Target, both of which are trading at $50 per share. Analysts believe there’s a 50% chance of the economy growing or a 50% chance of the economy falling into a recession. If the economy grows, then the price of the Walmart stock will fall to $40 per share and the price of the Target stock will rise to $70 per share. If, however, the economy goes into a recession, then the price of the Walmart stock will rise to $70 per share and the price of the Target stock will fall to $40 per share. For each of the following, determine the expected value of your portfolio.

a. Buy $500 of Walmart stock.

b. Buy $500 of Target stock.

c. Buy $250 of Walmart stock and $250 of Target stock assuming the economy goes into recession. Does the answer change if the economy grows instead?

d. Do all three possible investments result in the same expected value for your portfolio?

e. Do all three possible investments result in the same level of risk?