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An investor has $100,000 to invest this year. One option is to purchase a guaranteed investment certificate with a 1.8% yield. Another option is to purchase a risky stock. The investor believes that the stock will increase by 5% with probability 0. 7, and will decrease by 3% with probability 0.3. Based on these assumptions, what should the investor do? Do you have any practical caveats for the investor?

An investor has $100,000 to invest this year. One option is to purchase a guaranteed investment certificate with a 1.8% yield. Another option is to purchase a risky stock. The investor believes that the stock will increase by 5% with probability 0. 7, and will decrease by 3% with probability 0.3. Based on these assumptions, what should the investor do? Do you have any practical caveats for the investor?

Calculus For The Life Sciences
Calculus For The Life Sciences
2nd Edition
ISBN:9780321964038
Author:GREENWELL, Raymond N., RITCHEY, Nathan P., Lial, Margaret L.
Publisher:GREENWELL, Raymond N., RITCHEY, Nathan P., Lial, Margaret L.
Chapter12: Probability
Section12.CR: Chapter 12 Review
Problem 10CR
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An investor has $100,000 to invest this year. One option is to purchase a guaranteed investment certificate with a 1.8% yield. Another option is to purchase a risky stock. The investor believes that the stock will increase by 5% with probability 0. 7, and will decrease by 3% with probability 0.3. Based on these assumptions, what should the investor do? Do you have any practical caveats for the investor?
Transcribed Image Text:An investor has $100,000 to invest this year. One option is to purchase a guaranteed investment certificate with a 1.8% yield. Another option is to purchase a risky stock. The investor believes that the stock will increase by 5% with probability 0. 7, and will decrease by 3% with probability 0.3. Based on these assumptions, what should the investor do? Do you have any practical caveats for the investor?
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