An investor is choosing between three investment strategies: invest all her money into project A ("Strategy A"), all into project B ("Strategy A), or half into A and half into B ("Strategy half-half). With 30% probability the return of A is 2% and B is 1%; with 30% probability the return of A is 3% and of B is 4%, and with 40% probability the return of A is 6% and of B is 6%. a. Calculate the expected return and the variance of the return for each of the investment strategies. b. Which of the investment strategy would you choose and why? Justify your choice in 2-5 sentences. c. Are the returns of A and B positively correlated, negatively correlated, or independent? Comment on your answer in relation to the answers you found in a. in 2-5 sentences. d. Suppose that you chose Strategy half-half, invested 1million NOKs, and it turned out that the realized return of A was 3% and of B was 4%. Is your realized ROI larger or smaller than the expected ROI? How does your answer depend on the amount that you invested?
An investor is choosing between three investment strategies: invest all her money into project A ("Strategy A"), all into project B ("Strategy A), or half into A and half into B ("Strategy half-half). With 30% probability the return of A is 2% and B is 1%; with 30% probability the return of A is 3% and of B is 4%, and with 40% probability the return of A is 6% and of B is 6%.
a. Calculate the expected return and the variance of the return for each of the investment strategies.
b. Which of the investment strategy would you choose and why? Justify your choice in 2-5 sentences.
c. Are the returns of A and B positively correlated, negatively correlated, or independent? Comment on your answer in relation to the answers you found in a. in 2-5 sentences.
d. Suppose that you chose Strategy half-half, invested 1million NOKs, and it turned out that the realized return of A was 3% and of B was 4%. Is your realized
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