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Homework answers / question archive / You have opportunities to invest in 2 catastrophic bonds with 1-year maturity

You have opportunities to invest in 2 catastrophic bonds with 1-year maturity. The first bond offers 8% annual rate of return, and the catastrophic triggering event forfeiting all principal and interest has the probability of 2%. The second bond offers 6% annual rate of return, and the triggering event forfeiting all principal and interest has the probability of 1%. If you invest 60% of your wealth in the 1st bond and 40% in the 2nd bond, what is your expected return?

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