SCENARIO 5-7 There Are Two Houses with Almost Identical Characteristics Available for Available

question 91

Short Answer

SCENARIO 5-7
There are two houses with almost identical characteristics available for investment in two different neighborhoods with drastically different demographic composition.The anticipated gain in value when the houses are sold in 10 years has the following probability distribution:

-Referring to Scenario 5-7,if your investment preference is to maximize your expected return and not worry at all about the risk that you must take,will you choose a portfolio that will consist of 10%,30%,50%,70%,or 90% of your money on the house in neighborhood A and the remaining on the house in neighborhood B?

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Definitions:

Maturity Value

The amount of money an investment will produce at the end of its holding period, including the principal and interest or dividends.

Price Volatility

The degree to which the price of an asset, security, or market index moves up or down over time.

Coupon Bond

A bond that pays the holder a fixed interest payment (coupon) at regular intervals until maturity, when the principal amount is repaid.

Maturity

The date on which the principal amount of a financial instrument, such as a bond or loan, becomes due and is to be paid.