Suppose you are considering investing some of your wealth in one of three investment portfolios: gold, food, or auto. Your broker provides you with the following table, which gives the probabilities of possible returns from each investment: Gold Food Auto Probability Return Probability Return Probability Return 0.2 15% 0.4 15% 0.2 20% 0.3 8.3% 0.6 5% 0.25 12% 0.2 10% 0.25 6% 0.3 5% 0.2 5% 0.1 0.10% Which investment should you choose to maximize your expected return: gold, food, or auto? If you are risk-averse and have to choose between the gold and the food investments, which should you choose? Why? Do I have to use standard deviation? Why?
Suppose you are considering investing some of your wealth in one of three investment portfolios: gold, food, or auto. Your broker provides you with the following table, which gives the probabilities of possible returns from each investment: Gold Food Auto Probability Return Probability Return Probability Return 0.2 15% 0.4 15% 0.2 20% 0.3 8.3% 0.6 5% 0.25 12% 0.2 10% 0.25 6% 0.3 5% 0.2 5% 0.1 0.10% Which investment should you choose to maximize your expected return: gold, food, or auto? If you are risk-averse and have to choose between the gold and the food investments, which should you choose? Why? Do I have to use standard deviation? Why?
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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- Suppose you are considering investing some of your wealth in one of three investment portfolios: gold, food, or auto. Your broker provides you with the following table, which gives the probabilities of possible
returns from each investment:
| Gold |
Food |
Auto |
|||
|
Probability |
Return |
Probability |
Return |
Probability |
Return |
|
0.2 |
15% |
0.4 |
15% |
0.2 |
20% |
|
0.3 |
8.3% |
0.6 |
5% |
0.25 |
12% |
|
0.2 |
10% |
0.25 |
6% |
||
|
0.3 |
5% |
0.2 |
5% |
||
|
0.1 |
0.10% |
Which investment should you choose to maximize your expected return: gold, food, or auto?
If you are risk-averse and have to choose between the gold and the food investments, which should you choose? Why?
Do I have to use standard deviation? Why?
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