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(7) Supp ose you just inherited $5,000 and are considering the following options for investing the money to maximize your wealth: Option 1 Put the
(7) Supp ose you just inherited $5,000 and are considering the following options for investing the money to maximize your wealth: Option 1 Put the money in an interest-bearing checking account, which ear insures the account against bank failure. Option 2 Loan the money to one of your friends roommates, Mike, at an agreed-upon interest rate of 12%, but you believe there is a 7% chance that Mike will leave town without ns 3%. The FDIC repaying you. a. Compute the expected return for both options. b. If you are risk-averse, which of the two options should you choose to maximize your expected return? Explain why
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