A financial investor builds a portfolio that is worth an expected £35mil. The investor knows that his analysts can build a model to boost the potential return from the portfolio investment. The additional return has a Normal Distribution with mean £3mil and standard deviation £0.5mil. The investor wishes to sell his financial services at a price that guarantees his expected profit will be 5% of the total return from the portfolio. Now assume the financial advisor knows that another advisor will offer a competitive portfolio. Based on historical data, he knows this competitive portfolio’s total return follows a normal distribution with mean £36mil and standard deviation of £2mil and is priced at 5% of total return. Clients will naturally choose the advisor which offers the portfolio with the highest net How does the distribution of profit over the range of financial prices considered in part B) changes, when the competitor is considered?
A financial investor builds a portfolio that is worth an expected £35mil. The investor knows that his analysts can build a model to boost the potential return from the portfolio investment. The additional return has a
Now assume the financial advisor knows that another advisor will offer a competitive portfolio. Based on historical data, he knows this competitive portfolio’s total return follows a normal distribution with mean £36mil and standard deviation of £2mil and is priced at 5% of total return. Clients will naturally choose the advisor which offers the portfolio with the highest net How does the distribution of profit over the
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