Calculate the variance and the expected return for each bond

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Reference no: EM131515031

Suppose that the following two bonds have the same characteristics except that

a. Bond 1 yields a rate of return of 8% with probability 0.2 and a rate of return of 2% with probability 0.8.

b. Bond 2 always yields a rate of return of 3.2%

If you are a risk-averse person, which bond should you prefer? Calculate the variance and the expected return for each bond to explain your answer.

Reference no: EM131515031

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