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An individual faces two alternatives for an investment: (1) Asset A has the following probability return schedule: Prob of return return 25% -10% 25% 0%
An individual faces two alternatives for an investment:
(1) Asset A has the following probability return schedule:
Prob of return return
25% -10%
25% 0%
25% 20%
25% 24%
(2) Asset B has a certain return of 5.0%.
What is the expect return for investment A?
Can we say whether or not a risk averse investor will have a definite preference for A or B? Explain your answer. (Hint: start with the expected value!)
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