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

question 164

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 all of his money in the rain poncho company, what is his expected gain or loss?

• A)a loss of $2,500
• B)to break even
• C)a gain of $2,500
• D)a gain of $10,000

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Definitions:

Negotiate

The process of discussing something with one or more people in order to reach an agreement or compromise.

Assignment

The act of transferring rights or duties under a contract to another party.

Equity Bank

A financial institution that offers banking services with a focus on equity financing, or alternatively, a bank that has equity in other companies.

Payee's Bank

The bank where the recipient of a check or electronic payment has an account, responsible for processing and clearing the payment.