Question
Julia is considering buying stock in only one of the following companies: (i) Uninvest.com, which runs a Web site geared toward older people's retirement income
Julia is considering buying stock in only one of the following companies: (i) Uninvest.com, which runs a Web site geared toward older people's retirement income and has a 10 percent probability of returning 20 percent this year and a 90 percent probability of returning 7 percent, or (ii) Speculate, Inc., which invests in derivative securities and has a 50% percent chance of returning 0 percent this year and a 50 percent chance of returning 50 percent.
a. What are the expected returns to investing in Univest and Speculate?
b. What are the standard deviations of the returns to Uninvest and Speculate?
c. If Julia is very risk-averse, which company's stock should she buy?
d. If Julia is risk-neutral (that is, she does not worry about risk at all), which company's stock should she buy?
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