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1) Graph and explain the risk profile for the following: Risk Expected Return 0.

1) Graph and explain the risk profile for the following:
Risk Expected Return
0.10 0.07
0.14 0.10
0.20 0.15
0.30 0.25
2) Given the following two investment options, explain what an investor would choose and why:
Investment 1, an investment that is guaranteed a 6.5 percent return.
Investment 2, an investment that has a probability 0.25 of earning 5%, a 0.50 probability of earning 10%, and a 0.25 probability of earning 0%.
3) Explain which of the investments below are riskier and why:
Corporate stocks
Corporate bonds
Treasury bonds
4) For the class of investors below, explain which investment vehicle they are likely to choose based on its risk profile (stock, corporate bond, and Treasury bond):
A retiree that is looking for a safe investment
A 28-year-old MBA graduate looking for high returns
A forty-something professional looking for good investment income

This question was asked on May 04, 2010.

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