Suppose that you are trying to decide whether to spend $5,000 on stock issued by WildWeb or on a bond issued by
the same company. There is a 30 percent chance that the value of the stock will rise to $11,000 at the end of the year and a 70 percent chance that the stock will be worthless at the end of the year. The bond promises an interest rate of 25 percent per year, and it is certain that the bond and interest will be repaid at the end of the year.
Assuming that your time horizon is exactly one year, will you choose the stock or the bond? ▼
The expected value of stock at the end of one year is [(.30) *11000 + (.70) x0]... View the full answer