Consider the Following Two Investments

question 86

Essay

Consider the following two investments.One is a risk-free investment with a $100 return.The other investment pays $2000 20% of the time and a $375 loss the rest of the time.Based on this information, answer the following:
(i) Compute the expected returns and standard deviations on these two investments individually.
(ii) Compute the value at risk for each investment.
(iii) Which investment will risk-averse investors prefer, if either? Which investment will risk- neutral investors prefer, if either?

---

Definitions:

Codominant

Codominant refers to a genetic scenario where two different alleles of a gene are expressed equally in the phenotype of heterozygotes, neither being dominant or recessive.

Incomplete Dominant

A genetic pattern whereby an offspring's phenotype is a blend of the parents' phenotypes, neither gene being completely dominant.

Recessive Gene

A gene that can be masked by a dominant gene and is only expressed in a homogeneous state for that trait.

Trait Expressed

A characteristic or attribute that is displayed or manifested due to genetic expression or environmental influences.