Students at HT are planning to invest $1 million in a rock concert to be held 1 year fromnow. The students figure that they will obtain $3 million revenue from their $1 millioninvestment – unless, my goodness, it rains. If it rains, they will lose their entire investment.There is a 50% chance that it will rain the day of the concert. The faculty suggests that theybuy rain insurance. The students can buy one unit of insurance for $0.50, and this unit pays$1 if it rains and nothing if it does not. They may purchase as many units as they wish, up to$3 million.a) What is the expected rate of return on their investment if they buy u units of insurance?b) What number of units will minimize the standard deviation of their return? What is thisminimum value? And what is the corresponding return?
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