Refer to the Table Below

question 68

Essay

Refer to the table below.A particular stock market investment strategy has the following possible outcomes: (A)What is the expected return from this stock market investment strategy?
(B)Would you choose this expected return or take a safe return of either 8 percent from a U.S.Treasury bill or 6 percent from a savings deposit at a bank? Why?
(C)Suppose your grandfather tells you he would choose a safe return of 7 percent from a bank over the above stock-market investment strategy.Is he risk-averse? Explain.

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Definitions:

Shifts to the Right

A phrase indicating an increase in supply or demand in economic graphs, typically showing improvement or growth.

Price Effect

Refers to the impact on consumer demand or the quantity demanded of a good when its price changes, holding other factors constant.

Quantity Effect

The change in total revenue resulting from a change in the quantity of a product sold, holding price constant.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good, quantitatively defined as the percentage change in quantity demanded divided by the percentage change in price.