Consider the following two investment alternatives.First,a risky portfolio that pays 20% rate of return with a probability of 60% or 5% with a probability of 40%.Second,a treasury bill that pays 6%.If you invest $50,000 in the risky portfolio,your expected profit would be _________.
A) $3,000
B) $7,000
C) $7,500
D) $10,000

Question

Quizplus · Accepted Answer

The expected return of the risky portfolio is (0.6 * 20%) + (0.4 * 5%) = 14%. The expected profit is 14% of $50,000, which is $7,000.

Consider the Following Two Investment Alternatives