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Suppose the? risk-free interest rate is 5%?, and the stockmarket will return either be +21% or ?10% each? year, with eachoutcome equally likely. Compare the following two investment?strategies: (1) invest for one year in the? risk-free investment,and one year in the? market, or? (2) invest for both years in themarket.a. Which strategy has the highest expected final? payoff?b. Which strategy has the highest standard deviation for thefinal? payoff?c. Does holding stocks for a longer period decrease your?risk?
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