What is berthas expected rate of return

Reference no: EM13742780

Question 1:

(a) Suppose Bertha buys a bungalow for $250,000. She expects she can either rent it out at $2,000/month, or with $15,000 invested in improvements, she expects to sell it for $305,000. What is Bertha's expected rate of return in each scenario.

(b) Suppose you are faced with two options. Option A has a probability of 0.75 of earning 14% and a probability of 0.25 of earning 4%. Option B has a probability of 0.55 of earning 13% and a probability of 0.45 of earning 8%. Both options have a beta value of 1.25. Which option is an investor more likely to choose?

Question 2:

(a) Describe three ways that the division of labour contributes to society''s output.

(b) Explain this quote from Adam Smith: "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner but from their regard to their own interest."

Reference no: EM13742780

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