An investor has a certain amount of money available to invest now. Three alternative investments are available. The estimated profits, in Kwacha, of each investment under each economic condition are indicated in the following payoff table: Event Investment selection A B C Economy declines 500 -2000 -7000 No charge 1000 2000 -1000 Economy Expand 2000 5000 20,000 Based on his own past experience, the investor assigns the following probabilities to each economic condition: P (Economy declines) = 0.30 P (No Change) = 0.50 P (Economy expands) = 0.20 i. Compute the coefficient of variation for each investment. ii. Compute the return-to-risk ratio (RTRR) for each investment. iii. Based on (i) and (ii), what investment would you choose? Why?
An investor has a certain amount of money available to invest now. Three alternative investments are available. The estimated profits, in Kwacha, of each investment under each economic condition are indicated in the following payoff table:
|
Event |
Investment selection |
||
|
A |
B |
C |
|
|
Economy declines |
500 |
-2000 |
-7000 |
|
No charge |
1000 |
2000 |
-1000 |
|
Economy Expand |
2000 |
5000 |
20,000 |
Based on his own past experience, the investor assigns the following probabilities to each economic condition:
P (Economy declines) = 0.30
P (No Change) = 0.50
P (Economy expands) = 0.20
i. Compute the coefficient of variation for each investment.
ii. Compute the return-to-risk ratio (RTRR) for each investment.
iii. Based on (i) and (ii), what investment would you choose? Why?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 7 images
