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Q5.23. (Strange) Stock A always alternated between +20% and 10% in the past. Stock B earned 4.5% per annum. 1. What was the average rate

Q5.23. (Strange) Stock A always alternated between +20% and 10% in the past. Stock B earned 4.5% per annum.

1. What was the average rate of return for stock A? 2. What was the average rate of return for stock B? 3. On a 1-year basis, would a risk-neutral investor prefer +20% or 10% with equal probability, or 4.5% for sure? 4. How much would each dollar invested 10 years ago in stock A have earned? 5. How much would each dollar invested 10 years ago in stock B have earned? 6. What is going on here?

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