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

question 133

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 minimise the amount of risk that you have to take and do not care at all about the expected return,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:

FOB Destination

A shipping term indicating that goods are delivered at the seller’s expense to a specific location, with ownership transferring to the buyer upon delivery.

FOB Shipping Point

A term indicating that the buyer assumes responsibility for shipping costs and liability once the goods leave the seller's premises.

Legal Title

Legal ownership of property or assets, which includes the right to use, sell or transfer them.

FOB Shipping Point

A shipping term indicating that the buyer assumes transportation costs and risk of loss once the goods leave the seller's premises.