Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are a nikk-averse investor who is considering investing in one of two economios. The expected return arid volatility of all stocks in both econoenies

image text in transcribed
You are a nikk-averse investor who is considering investing in one of two economios. The expected return arid volatility of all stocks in both econoenies is the same. In the first oconomy, all stocks move together-in good times all peices rise together, and in bad times they all fall fogether. In the second economy, stock roturns-are independent-one stock increasing in price has no effect on the prices of other stocks. Which economy would you choose to irivest in? Explain. (Select the best choice below) A. A risk avere investor is indefferent in both cases because he or she fices unprodictable risk B. A risk averse investor would prefer the economy in which stock returne are independent because by combining the stocks into a porttolio he or she can get a higher expected retum than in the economy in which all slocks move together. C. Arisk averse investor would choose the esonomy in which stocks move fogether because the uncertainty is much more prodictable, and you have fo predict only one thing. D. A risk averse investor would choose the ecpnoiny in which stock returns are independent because risk can be diversified away in a large portiolio

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Health Care Finance Economics And Policy For Nurses

Authors: Betty Rambur

2nd Edition

0826152538, 978-0826152534

More Books

Students also viewed these Finance questions

Question

2. You seem to feel frustrated when Lee doesnt do his homework.

Answered: 1 week ago