Asked by sharonda sheriff on May 30, 2024
Verified
If you invest $100 now in firm A, in one year you will get back $(30 T), where T is the average temperature during the next summer.If you invest $100 now in firm B, in one year you will get back $(180 T).The expected value of T is 70 and the standard deviation of T is 10.
a.Draw a graph showing the combinations of expected return and standard deviation that you can have by dividing $100 between stock in A and stock in B.(Hint: Expected value has the property that E(ax b) aE(x) b and standard deviation has the property that SD(ax b) [(absolute value of a)times SD(x)]
b.What is the expected value and standard deviation of the safest investment strategy you can make by this means?
b.)
c.What is the highest expected value you can achieve?
Average Temperature
The mean value of temperature taken over a specified period of time, used to describe climate or weather conditions.
Standard Deviation
A quantitative indicator that calculates the degree of spread or variability among a collection of data points.
- Determine the expected revenue and variance in risk of a financial portfolio.
- Exhibit proficiency in assembling a portfolio designed to optimize expected utility.
- Evaluate investment choices based on expected return and risk characteristics.
Verified Answer
ZK
Zybrea KnightJun 04, 2024
Final Answer :
a.The locus includes the line segment from (S, E) (0,105)to (S, E) (10, 110)as well as the line segment from (0, 105)to (10, 100).
b.105 and 0.
c.110.
b.105 and 0.
c.110.
Learning Objectives
- Determine the expected revenue and variance in risk of a financial portfolio.
- Exhibit proficiency in assembling a portfolio designed to optimize expected utility.
- Evaluate investment choices based on expected return and risk characteristics.