Scenario: Diversification Morris Is Considering Investing $10,000 in a Sunglass

question 64

Multiple Choice

Scenario: Diversification Morris is considering investing $10,000 in a sunglass company or a rain poncho company.If it is a rainy year and he invests only in the sunglass company, he expects to lose $5,000 at the end of the year.However, if it is a rainy year and he invests only in the rain poncho company, he expects to earn $10,000.If it is a sunny year and he invests only in the sunglass company, he expects to earn $10,000 at the end of the year; if he invests only in the rain poncho company, he expects to lose $5,000 in a sunny year.There is a 50% chance of a sunny year and a 50% chance of a rainy year.
(Scenario: Diversification) Based on the information in the scenario Diversification, if Morris invests half of his money in the sunglass company and half in the rain poncho company, he will earn ________ if it is a sunny year and if it is a rainy year.

• A)$2,500; $0
• B)$1,250; $1,250
• C)-$2,500; $2,500
• D)$2,500; $2,500