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You have been given an endowment of 100 ECU. There are two investments you can choose from: A risk-free investment which does have
a sure return of 0% (i.e., you do not lose or grain any ECUs), and a risky investment which has an expected return of 6.0% with a volatility of 20.0%
(similar to the German stock market index DAX). The amout you do not invest into the risky investment will automatically be invested
into the riskless invesment.
However, you can only invest your endowment in the risky investment cia the two investment advisors. Both charge you for their services as shwon below.
This charge is automatically deducted from your return on the risky investment. The investment advisor does not keep this charge. The investment advisors'
compensation is fixed and does therefore not depend on your investment decision.
Given the information about the amounts both investment advisors were willing to return in the first experimental task and
the costs they charge, please make an investment decision for each advisor separately.
| Advisor | Cost (on risky investment) | Returned amount for amount you sent (You sent: 0 ECU) | Expected Return after costs | Variance |
|---|---|---|---|---|
| X | 0.75% | 0 ECU | (6.0 - 0.75)% | 20.0% |
| Y | 1.5% | 0 ECU | (6.0 - 1.5)% | 20.0% |