1. Sue Pansky, a retired grade-school teacher, is considering investing in Starting Right. She is very conservative and is a risk avoider. What do you recommend? Since Sue is a risk avoider and is very conservative, I would recommend investing in corporate Bonds. The reason is that her investment of $30,000 is secure to the extent of $20,000 as this amount has been guaranteed by Julia. On the other hand she gets a steady income at the rate of 13% per annum. 2. Ray Cahn, who is currently a commodities broker, is also considering an investment, although he believes that there is only an 11% chance of success. What do you recommend? Since, Ray Cahn believes that there is only 11 percent of success, in case of preferred stocks his expected returns is 11% X 4 = 44% plus 50% = 94%. In case of common stocks his expected returns is only 88%. So, Ray Cahn should go in for corporate bonds. This is the choice recommended for him. 3. Lila Battle has decided to invest in Starting Right. While she believes that Julia has a good chance of being successful, Lila is a risk avoider and very conservative. What is your advice to Lila? There are two sets of information about Lila, since she believes that Julia has a good chance of being successful, she should go in for common stock. On the other hand she is very conservative and a risk avoider, so she should go in for corporate bonds. On balance the recommendation for Lila is that she should go in for corporate bonds. 4. George Yates believes that there is an equally likely chance for success. What is your recommendation? If George Yates goes in for preferred stocks, then his expected returns at the end of 5 years is 4 x 50%= 200% plus 50%.= 200%. If George Yates goes in for common stock then his expected returns is 8 X 50% = 400%. In other words, Yates expects the maximum income when he goes in for common stocks. So Yates should invest in common stocks.
5. Peter Metarko is extremely optimistic...
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