Consider the following two investment alternatives.First,a risky portfolio that pays a 15 percent rate of return with a probability of 60% or a 5 percent return with a probability of 40%,and second,a T-bill that pays 6 percent.If you invest $50,000 in the risky portfolio,your expected profit would be __________.
A) $5,500
B) $7,500
C) $25,000
D) $3,000
E) none of these

Question

Quizplus · Accepted Answer

The expected return of the risky portfolio is calculated as (0.60 * 15%) + (0.40 * 5%) = 11%. The expected profit on a $50,000 investment is 11% of $50,000, which is $5,500.

Consider the Following Two Investment Alternatives