Book Print ferences Problem 11-04 (algo) You have $1,200 to invest and are considering buying some combination of the shares of two companies, DonkeyInc and Elephantinc. Shares of DonkeyInc will pay a return of 10 percent if the Democrats are elected, an event you believe to have a 30 percent probability, otherwise the shares pay a zero return. Shares of Elephantinc will pay 8 percent if the Republicans are elected (a probability of 70 percent), zero otherwise. Either the Democrats or the Republicans will be elected. Instructions: Enter your response as percentage rounded to one decimal place. a. If your only concern is maximizing your average expected return, with no regard for risk, you should invest your $1,200 in DonkeyInc. and your expected return will be [ b. What is your expected return if you invest $600 in each stock? (Hint: Consider what your return will be if the Democrats win and if the Republicans win, then weight each outcome by the probability that event occurs.) Instructions: Enter your response as percentage rounded to two decimal places. Expected rate of return: c. The strategy of investing $600 in each stock does not give the highest possible average expected return. You would: O not choose it because you should always choose the strategy with the highest average expected return. O choose it anyway because the lower return is compensated by this strategy being less risky, as you receive a reasonable return no matter which party wins. O choose it anyway because this strategy guarantees the same return regardless of which party wins. O not choose it because a less risky strategy cannot compensate for a lower expected return. d. Devise an investment strategy that is riskless, that is, one in which the return on your $1,200 does not depend at all on which party ences c. The strategy of investing $600 in each stock does not give the highest possible average expected return. You would: O not choose it because you should always choose the strategy with the highest average expected return. O choose it anyway because the lower return is compensated by this strategy being less risky, as you receive a reasonable return no matter which party wins. O choose it anyway because this strategy guarantees the same return regardless of which party wins. not choose it because a less risky strategy cannot compensate for a lower expected return. d. Devise an investment strategy that is riskless, that is, one in which the return on your $1,200 does not depend at all on which party wins. Instructions: Enter your responses rounded to two decimal places. in Elephantinc and $ You should invest $[ In Donkeyinc e. Using the investment strategy devised in part d, you will earn | % regardless of which party wins