Homework Help: Probabilities

Posted by Andrey L on Friday, May 1, 2009 at 10:36pm.

An investor has $20,000 to invest in stocks. She can buy blue chip or specu-
lative stocks. If the market goes up the blue chips will pay oŽ $30,000 and speculative will
pay oŽ $50,000. If the market goes down, the blue chips will pay oŽ $10,000 and speculative
will pay oŽ $1,000. If the probability of the market going up is :4, then the expected proŻt
for the best strategy is closest to?

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