You are given the following payoff table showing the possible annual returns of three securities for the year 2019 under different economic conditions. You considering just a single-security investment. Higher GrowthLikely GrowthLower GrowthSavings Account664Bond91215Stock3221-5Probability0.200.60? Required:Explain the meaning of 32 and 12 in the payoff table.Which security would you consider for investment based on the expected return?Which security would you consider for investment based on risk? Advise on the optimum rational decision and explain why?

1. Meaning of 32 : It means if you invest in the stock then there are 20% probability that your…

Answered: Explain the meaning of 32 and 12 in the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You are given the following payoff table showing the possible annual returns of three securities for the year 2019 under different economic conditions. You considering just a single-security investment.


	Higher Growth	Likely Growth	Lower Growth
Savings Account	6	6	4
Bond	9	12	15
Stock	32	21	-5
Probability	0.20	0.60	?

Required:

Explain the meaning of 32 and 12 in the payoff table.
Which security would you consider for investment based on the expected return?
Which security would you consider for investment based on risk?

Advise on the optimum rational decision and explain why?

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