You are given the option to invest 100,000 dollars in a mix of Assets. The Asset
ID: 2614601 • Letter: Y
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You are given the option to invest 100,000 dollars in a mix of Assets. The Assets are good in general and have good potential to earn a good return on your investment, Alternatively you can keep your 100,000 dollars in a CD that pays you an annual interest of 3 % and is guaranteed . Given the following alternatives of return for the Asset which Investment will you Select and Why? Assets: Principal Investment 10OK Macroeconomic Condition: Rapid Growth ( 54 % ) Moderate growth ( 2-275 % ) Recession ( 0,5 % ) Probability 0.25 0.50 0.25 Annual Return ( % ) 30 12 0.5 You are given the option to invest 100,000 dollars in a mix of Assets. The Assets are good in general and have good potential to earn a good return on your investment, Alternatively you can keep your 100,000 dollars in a CD that pays you an annual interest of 3 % and is guaranteed . Given the following alternatives of return for the Asset which Investment will you Select and Why? Assets: Principal Investment 10OK Macroeconomic Condition: Rapid Growth ( 54 % ) Moderate growth ( 2-275 % ) Recession ( 0,5 % ) Probability 0.25 0.50 0.25 Annual Return ( % ) 30 12 0.5 You are given the option to invest 100,000 dollars in a mix of Assets. The Assets are good in general and have good potential to earn a good return on your investment, Alternatively you can keep your 100,000 dollars in a CD that pays you an annual interest of 3 % and is guaranteed . Given the following alternatives of return for the Asset which Investment will you Select and Why? Assets: Principal Investment 10OK Macroeconomic Condition: Rapid Growth ( 54 % ) Moderate growth ( 2-275 % ) Recession ( 0,5 % ) Probability 0.25 0.50 0.25 Annual Return ( % ) 30 12 0.5 19. (10 points) You are given the option to invest 100,000 dollars in a mix of Assets. The Assets are good in general and have a good potential to earn a good return on your investment. Alternatively you can keep your 100,000 dollars in a CD that pays you an annual interest of 3% and is guaranteed. Given the following alternatives of return for the Asset which Investment will you Select and Why? Assets: Principal Investment 100K Macroeconomic Condition: Rapid Growth (> 4 %) Moderate growth (2-275%) Recession Probability 0.25 0.50 0.25 Annual Return (%) 30 12 0.5 (0--5%)Explanation / Answer
macro economic conditions
probability
return
probability*return
rapid growth
0.25
30
7.5
moderate growth
0.5
12
6
recession
0.25
0.5
0.125
return on investment
13.625
macro economic conditions
probability
return
return-average return
square of (return-average return)
probability*square of (return-average return)
rapid growth
0.25
30
16.375
268.1406
67.03516
moderate growth
0.5
12
-1.625
2.640625
1.320313
recession
0.25
0.5
-13.125
172.2656
43.06641
average return
13.625
Variance = probability*square of (return-average return)
111.4219
Standard deviation = square root of variance
10.56
It is better to investment in assets as it is offering return of 13.63% and risk of 10.56 while investment in CD assured return is 3% and risk is 0 so for a risk averse investor it is better to earn higher return with limited degree of risk
macro economic conditions
probability
return
probability*return
rapid growth
0.25
30
7.5
moderate growth
0.5
12
6
recession
0.25
0.5
0.125
return on investment
13.625
macro economic conditions
probability
return
return-average return
square of (return-average return)
probability*square of (return-average return)
rapid growth
0.25
30
16.375
268.1406
67.03516
moderate growth
0.5
12
-1.625
2.640625
1.320313
recession
0.25
0.5
-13.125
172.2656
43.06641
average return
13.625
Variance = probability*square of (return-average return)
111.4219
Standard deviation = square root of variance
10.56
It is better to investment in assets as it is offering return of 13.63% and risk of 10.56 while investment in CD assured return is 3% and risk is 0 so for a risk averse investor it is better to earn higher return with limited degree of risk
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