As the Winning Contestant in a Television Game Show, You

question 7

Multiple Choice

As the winning contestant in a television game show, you are considering the prizes to be awarded.You must indicate to the sponsor which of the following two choices you prefer, assuming you want to maximise your wealth.Assume it is now January 1, and there is no danger whatever that the sponsor won't pay off. Which one would you choose?

• A) Choice 1
• B) Choice 2
• C) Choice 1, if the payments were made at the end of the year.
• D) The choice would depend on how soon you need the money.
• E) Either one, since they have the same present value.

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Definitions:

Standard Deviation

A measure of the dispersion or variation in a set of data points, often used in finance to quantify the risk of an investment.

Positive Alpha

A metric indicating that an investment has performed better than its benchmark index, suggesting superior management or strategy.

Long Equity

An investment strategy where investors purchase stocks or equity securities with the expectation that their value will increase over time.

Hedge Fund

A private investment partnership that uses complex strategies and various instruments to achieve high returns.