View Paragraph FIN42040 Tutorial 2- Microsoft Word AaBbCc AaBbCc AaBbC AaBbCc AaB AaBbCcl AaBbCcD AaBbCcD AaBbCcD AaBbCc Normal 1 No Spaci... Heading 1 Heading 2 Title Subtitle Subtle Em... Intense E... Emphasis Strong Styles 1. Consider the following two investments. Which is preferred if the utility function is U(W) = -W-0.04W2? Investment A Investment B $ Outcome Probability $ Outcome Probability 7 0.4 5 0.5 10 0.2 12 0.25 14 0.4 20 0.25 2. Consider again the table in problem 1. The probability of a $5 payoff is 0.5 and a $12 payoff is 0.25. How much would these probabilities have to change so that the investor is indifferent between investments A and B? 3. During a period of severe inflation, a bond offered a nominal HPR of 80% per year. The inflation rate was 70% per year. a. What was the real HPR on the bond over the year? b. Compare this real HPR to the approximation r R-i. 4. MCQ - Diversification among assets improves the opportunities faced by all risk-averse investors a. irrespective of the correlation coefficients b. only if correlations are not larger than zero c. only if the assets have similar variances d. for assets with relatively large variances e. none of the above FA % 5 6 54 F7 & 27 Home End F10 F12 + 8 ( 9 P