Ques2.) John is a risk adverse investor. He has $40,000 to invest for one year. He has two choices: Choice #1: Buy shares of Googly Inc., which can payoff: $10,000 if Googly is in a high payoff state (H) and, $4,000 if Googly is in a low payoff state (L) . I Choice #2: Buy shares of Amazona Inc.; with which can payoff: $10,500 if Amazona is in a high payoff state (H) and, $2,000 if Amazona is in a low payoff state (L) John's prior probabilities on the future state of Googly and Amazona are both: P(H) = 0.80 P(L) - 0.20 John's utility is equal to the square root of the amount of the payoff. (Risk adverse) Required: (Show all your calculations) (Ignore initial investment of $40,000) a. Which choice of investment would John prefer; Shares of Googly or Amazona? b. Before making the investment John decides to become more informed. He studies the management discussion and analysis (MD&A) of each company from their latest annual report. He knows that careful evaluation of the quality of the discussion will provide inside evidence as to future expected cashflows. Companies with high expectations will usually provide better disclosure. John who is an expert on GAAP and current MD&A guidelines knows these probabilities below. P(GD/L)=0.2 P(GD/H)=0.7 After reading the current MD&As, John discovers that Googly has good disclosure (GD) and Amazona has poor disclosure (PD). a) Prepare the information system. b) Indicate which choice of shares John now prefer? c) John tells you his decision, and you suggest that it may be a good idea to invest in both Googly and Amazona. Why would you make this suggestion