Question 1 (15 marks) The objective of firms is to maximise the shareholders wealth. By doing so, management should make the best decisions for its financing and investing to create value in shareholders interest. Thus, the information pertaining to firms financial decisions should be incorporated into its stock price. As a junior fund manager after obtaining your MBA degree from JCU, you are tasked to analyse the possible value of firms information in your investments.

(a) Investors generally prefer option 1: receive $50 with 100% probability to option 2: receive $100 with probability 50% and receive $0 with 50% probability. Comment on your understanding of this statement. (3 marks)

(b) High risk high return in finance affects your portfolio selection in terms of assets allocation. Discuss your possible investment strategies adopted in financial planning.