Suppose you have $10,000 and a choice of two alternatives: A) put the money in a savings account that pays 4% per year, and B) buy a stock that has a 50% chance to gain 15% in value after 1 year, and a 50% chance to lose 5%. What will be the expected return for either alternative, and which one would you choose? Why?
Suppose you have $10,000 and a choice of two alternatives: A) put the money in a savings account that pays 4% per year, and B) buy a stock that has a 50% chance to gain 15% in value after 1 year, and a 50% chance to lose 5%. What will be the expected return for either alternative, and which one would you choose? Why?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Suppose you have $10,000 and a choice of two alternatives: A) put the money in a savings account that pays 4% per year, and B) buy a stock that has a 50% chance to gain 15% in value after 1 year, and a 50% chance to lose 5%. What will be the expected return for either alternative, and which one would you choose? Why?
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