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Big Sky Capital is looking to invest $5,000 in either of the following potential investments: 1) RedCanoe bonds priced to yield 8%. 2) AAA money

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Big Sky Capital is looking to invest $5,000 in either of the following potential investments: 1) RedCanoe bonds priced to yield 8%. 2) AAA money market fund paying 2%. If Red Canoe goes bankrupt Big Sky will get neither the interest nor the principal paid back. The odds of it going bankrupt are 15%. Part A - What is the best course of action if Big Sky is a risk averse investor and has a utility function defined as Vx (note: x is defined as the gross return)? Part B - What is the best course of action if Big Sky has a mean variance utility function that is defined as 27a - c where Big Sky now measures returns as net returns and the Red Canoe bonds are assumed to have price volatility of 10%

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