investment opportunities

investment opportunities

An investor not wanting to miss out on possible investment opportunities considers investing $20,000 in the stock market. He believes that the probability is 0.30 that the market will improve, 0.37 that it will stay the same, and 0.33 that it will deteriorate. Further, if the economy improves, he expects his investment to grow to $28,000, but it can also go down to $17,000 if the economy deteriorates. If the economy stays the same, his investment will stay at $20,000.

a. what is the expected value of his investment

b. What should the investor do if he is risk neutral…take it or not take it

c. s the decision clear-cut if he is risk averse

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