Suppose you are risk neutral and you are deciding between two investments. One has a guaranteed return of 2% while the second has a 60% chance of a 10% return and a 40% chance of a -5% return. Which investment would you choose? Why?
What will be an ideal response?
The second investment has an expected return of (0.6 × 10%)+(-5% × .4 ) = 4%. Since this is great than the expected return of the first investment, you choose the second investment.
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It can be said that ____ laid the foundation for the Industrial Revolution
a. the discovery of the Americas b. private property rights c. the invention of the cotton gin d. the discovery of gold e. the development of a strong judicial system
Which is not a reason Usury laws are often politically popular?
A. Few people sympathize with banks and other lenders who are suspected of price gouging. B. Consumers are in favor of the lower lending rates. C. The lower rates allow people to borrow more. D. Lenders, not the Usury laws, are often blamed by people who do not get loans.