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Suppose that you are trying to decide whether to spend $4,000 on stock issued by Wild Internet or on a bond issued by the same
Suppose that you are trying to decide whether to spend $4,000 on stock issued by Wild Internet or on a bond issued by the same company There is a 60 percent chance that the value of the stock will rise to $8,800 at the end of the year and a 40 percent chance that the stock will be worthless at the end of the year. The bond promises an interest rate of 25 percent per year, and it is certain that the bond and interest will be repaid at the end of the year. Assuming that your time horizon is exactly one year, will you choose the stock or the bond? By how much is your expected end-of-year wealth reduced if you make the wrong choice? $ Suppose the odds of success improve for Wild Internet: Now there is a 70 percent chance that the value of the stock will be $8,800 at year's end and only a 30 percent chance that it will be worthless, Should you now choose the stock or the bond? Y
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