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Question: Suppose two bonds (Apple Inc. and Samsung Electronics Co., Lid) are traded in the bond market and Ms. Wilson needs your advice on which one to buy. For the Apple bond, there is a probability of 60% (hat this bond will have a return of 18% or a probability of 40% that the same bond will have a return of 8%. For the Microsoft bond, there is a probability of 30% that this bond will have a return to 12% or a probability of 70% that the same bond will have a return of 14%.

a. Which bond has the highest expected return?

b. Which bond is less risky?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M92598056

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