View the step-by-step solution to:


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? ▼


Top Answer

The expected value of stock at the end of one year is [(.30) *11000 + (.70) x0]... View the full answer

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question