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You just won $ 5 0 0 million dollars in the lottery. You are considering buying a racehorse for $ 1 million. There is a
You just won $ million dollars in the lottery. You are considering buying a racehorse for $
million. There is a small chance that the horse is very successful an earns a return of
However, there is a chance that the horse is a "lemon", and you lose your entire investment
return of You may assume that the horse's performance is uncorrelated with the market,
that the market return is the Sharpe ratio of the market is and the market risk premium
is Should you buy the horse? Why or why not?
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