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5. You are choosing between two investments. The first requires an initial investment of $1000 and pays dividends of $250 starting at the end of
5. You are choosing between two investments. The first requires an initial investment of $1000 and pays dividends of $250 starting at the end of the first year and continuing forever. The second requires an initial investment of $1500. It has an uncertain payout. With 25% probability it will pay $1500 every year forever. With 75% probability it will pay $100 every year forever. Assume that you are risk neutral and have a discount rate of 10%. Assume that you have to choose one of the investments now. a. (10 points) Which investment should you make? Show work. b. (10 points) What is the Expected Value of Perfect information on the payoff of the second investment
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