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describe risk and return, please give detailed explanation Question 2 10 pts You have a choice between two investments, A and B, both of which
describe risk and return, please give detailed explanation
Question 2 10 pts You have a choice between two investments, A and B, both of which have to be held to maturity. Investment A generates a guaranteed simple return of 10% in the first year. In the second and final year of its life, it will generate a guaranteed simple return (on both the original investment and the first year return) of 5%. Investment B generates a guaranteed simple return of 15% in the first year. In the second and final year of its life, it will generate a guaranteed simple return (on both the original investment and the first year return) of 0%. [2 points] A) Which investment would generate more income over its life? Show your working. [5 points] B) Which investment would a risk-averse investor prefer? Explain your reasoning. [3 points] C) Would your answer change for a risk-neutral investor? [Hint: This question is mostly about whether the returns on investments A and B are uncertain.]Step by Step Solution
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