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A company has a choice of three investment schemes. Option I gives a sure $25,000 return on investment. Option II gives a 50% chance of returning $50,000 and a 50% chance of returning $10,000. Option III gives a 5% chance of returning $100,000 and a 95% chance of returning nothing. Which option should the company choose?

A company has a choice of three investment schemes. Option I gives a sure $25,000 return on investment. Option II gives a 50% chance of returning $50,000 and a 50% chance of returning $10,000. Option III gives a 5% chance of returning $100,000 and a 95% chance of returning nothing. Which option should the company choose?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A company has a choice of three investment schemes. Option I gives a sure $25,000 return on investment. Option II gives a 50% chance of returning $50,000 and a 50% chance of returning $10,000. Option III gives a 5% chance of returning $100,000 and a 95% chance of returning nothing. Which option should the company choose? O Option II if it wants to maximize expected return O Option III if it wants to maximize expected return Because of chance, it really doesn't matter which option it chooses. O Option I if it wants to maximize expected return All of the options have equal expected return so it doesn't really matter
Transcribed Image Text:A company has a choice of three investment schemes. Option I gives a sure $25,000 return on investment. Option II gives a 50% chance of returning $50,000 and a 50% chance of returning $10,000. Option III gives a 5% chance of returning $100,000 and a 95% chance of returning nothing. Which option should the company choose? O Option II if it wants to maximize expected return O Option III if it wants to maximize expected return Because of chance, it really doesn't matter which option it chooses. O Option I if it wants to maximize expected return All of the options have equal expected return so it doesn't really matter
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