Home Task 1 Investment Scenarios

Situation:

You have two alternative scenarios for investing $1,000,000.

Question:

Which investment scenario is better?

Home Task 2 Risk Assessment

Situation:

• Your business partner has proposed you to join him (her) in investing $100,000 each in a new enterprise.
• Assume that you have that amount of money available.
• In case of success your return is $40,000 but in case of failure you lose $20,000.
• Your analysis shows P40 = 0.3 of success and P-20 = 0.7 of failure.

Questions:

• Would you invest?
• What is your investment risk preference and analysis?

1. If the expected value equals zero, does it mean that in real-world situation your outcome will be zero?
2. Why do we need expected value, standard deviation and coefficient of variation in their decision making process under uncertainty?
3. What else do we need to do before making decision under uncertainty after the expected value, standard deviation, and coefficient of variation already calculated?