Compute the Expected Return, Standard Deviation, and Value at Risk

question 47

Essay

Compute the expected return, standard deviation, and value at risk for each of the following investments:
Investment (A): Pays $800 three-fourths of the time and a $1200 loss otherwise.
Investment (B): Pays $1000 loss half of the time and a $1600 gain otherwise.
State which investment will be preferred by each of the following investors, and briefly explain why.
(i) a risk-neutral investor.
(ii) an investor who seeks to avoid the worst-case scenario.
(iii) a risk-averse investor.

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Definitions:

IaaS

Infrastructure as a Service (IaaS) is a cloud computing model that provides virtualized physical computing resources over the Internet, including servers, networking, and storage.

PaaS

Platform as a Service, a cloud computing model that provides customers with a platform to develop, run, and manage applications without dealing with the underlying infrastructure.

SaaS

Stands for Software as a Service, a model for delivering software over the internet, allowing users to access software applications remotely via the web.

Service Model

A framework that outlines the delivery and management of services, typically describing how information technology services are offered to users.