Question
An investor may invest in a high-risk stock with a return of $1,500 if the stock market goes up, $200 if the market remains the
An investor may invest in a high-risk stock with a return of $1,500 if the stock market goes up, $200 if the market remains the same, and -$1,000 if the market goes down. Alternatively, the investor may invest in a low-risk stock with a return of $1,000 if the market goes up, $250 if the market remains the same, and $0 if the market goes down. Another option for the investor is to invest in a savings account and receive a fixed return of $700. The investor does not know the probabilities of the market going up, remaining the same, and going down. Please conduct the sensitivity analysis and prepare a graph that shows how the investor's decisions might be affected by these three probabilities.
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