Suppose that you are trying to decide whether to spend $4,000 on stock issued by WildWeb 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 30 percent peryear, 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 oneyear, will you choose the stock or thebond? stock

By how much is your expectedend-of-year wealth reduced if you make the wrongchoice? $

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