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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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