Discuss the below:
Q: One of your friends has $ 2000.00 available to invest. Assume that all the money must be placed in one of three investments; a money market fund, a stock, or gold. Each dollar that your friend invests in the money market fund earns a virtually guareanteed 12%. Each dollar that is invested in stock earns an annual return characterized by the probability distribution provided. Each dollar that is invested in gold earns an annual return characterized by the probability distribution provide.
A) If your friend must place all the available funds in a single investment, which investment should he choose to maximize his expected earnings of the next year?
| Investment data |
|
|
|
| Distribution of Annual Returns for Given Stock |
|
| Return |
Probability |
| 0.00 |
0.10 |
| 0.06 |
0.20 |
| 0.12 |
0.40 |
| 0.18 |
0.20 |
| 0.24 |
0.10 |
|
|
| Distribution of Annual Returns for Gold |
|
| Return |
Probability |
| -0.36 |
0.10 |
| -0.12 |
0.20 |
| 0.12 |
0.40 |
| 0.36 |
0.20 |
| 0.60 |
0.10 |