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Question 1. Explain intuitively the following concepts. (a) First order Stochastic Dominance (b) Second order Stochastic Dominance (c) Mean-Preserving spread (mean-variance criteria) (d) You are

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Question 1. Explain intuitively the following concepts. (a) First order Stochastic Dominance (b) Second order Stochastic Dominance (c) Mean-Preserving spread (mean-variance criteria) (d) You are offered the following two investment opportunities. Apply the concepts of (a)~(e) and discuss which one is preferred. Investment 1 Investment 2 Payoff Probability Payoff Probability 1/3 2 1/4 1 4 1/2 6 1/3 9 1/4 8 1/3 Question 1. Explain intuitively the following concepts. (a) First order Stochastic Dominance (b) Second order Stochastic Dominance (c) Mean-Preserving spread (mean-variance criteria) (d) You are offered the following two investment opportunities. Apply the concepts of (a)~(e) and discuss which one is preferred. Investment 1 Investment 2 Payoff Probability Payoff Probability 1/3 2 1/4 1 4 1/2 6 1/3 9 1/4 8 1/3

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