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please answer all prts and show your work i learn better by seeing step by step and please circle the final answer Question 2 An
please answer all prts and show your work i learn better by seeing step by step and please circle the final answer Question 2 An individual with some endowed amount of wealth seeks to invest in a risky bond instrument and is interested in his expected return and wealth. The individual has an initial wealth of $500 and the risk-free interest rate on a CD is given as r = 10%. Of the initial wealth, half is allocated between the risk-free and risky instrument. The probability T of a capital gain g is 65% and results in an increase in the value of the bond by 60%. A capital loss will result in a decrease of 30% of the bond's value. Define the gamble faced by the individual What is the return from the risk-free CD after one period? What would be the value of the bond upon maturity when there is a capital gain? The value after a capital loss? - Calculate the expected value of wealth (expected value of the gamble) at the end of one period Is this a favorable gamble? Justify your answer with calculations. Optional: If investors face the possibility of suffering a large capital loss from an investment, how should they be compensated for being willing to accept such an investment
please answer all prts and show your work i learn better by seeing step by step and please circle the final answer
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