Instruction 5-5
There Are Two Houses with Almost Identical Characteristics

question 44

Short Answer

Instruction 5-5
There are two houses with almost identical characteristics available for investment in two different neighbourhoods with drastically different demographic composition.The anticipated gain in value when the houses are sold in 10 years has the following probability distribution:
Returns
$$\begin{array} { | c | c | c | } \hline \text { Probability } & \text { Neighbourhood A } & \text { Neighbourhood B } \\\hline .25 & - \$ 22,500 & \$ 30,500 \\\hline .40 & \$ 10,000 & \$ 25,000 \\\hline .35 & \$ 40,500 & \$ 10,500 \\\hline\end{array}$$
-Referring to Instruction 5-5,if your investment preference is to maximise your expected return and not worry at all about the risk that you have to take,will you choose a portfolio that will consist of 10%,30%,50%,70%,or 90% of your money on the house in neighbourhood A and the remaining on the house in neighbourhood B?

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Definitions:

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