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Cameron is an investor trying to decide among the following

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Cameron is an investor trying to decide among the following three different investment options.;Option A;Price today: $1000;One year from today Cameron will receive one of the following payments;$1,250 with a probability of 90%;$1,000 with a probability of 8%;$0 with a probability of 2%;Option B;Price today: $1000;One year from today Cameron will receive one of the following payments;$4,000 with a probability of 30%;$1,000 with a probability of 50%;$0 with a probability of 20%;Option C;Price today: $1000;One year from today Cameron will receive one of the following payments;$2,000 with a probability of 33%;$1,000 with a probability of 34%;$0 with a probability of 33%;a. What is the expected value (payment) of each of the options at the end of the year?;b. Which of the options has the highest risk? Why?;c. If Cameron is a risk neutral inventor, which option will be selected?

 

Paper#21407 | Written in 18-Jul-2015

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