Suppose you have just inherited $10,500 and are considering different options for investing the money to maximize your return. If you are risk-neutral (that is, neither seek out or shy away from risk), which of the following options should you choose to maximize your expected return? A. Hold the money in cash and earn zero return. B. Invest the money in a corporate bond, with a stated return of 4%, but there is a chance of 9% the company could go bankrupt. C. Put the money in an interest-bearing checking account, which earns 3%. The FDIC insures the account against bank failure. D. Loan the money to one of your friends' roommates, Mike, at an agreed upon interest rate of 7%, but you believe there is a 5% chance that Mike will leave town without repaying you.

Suppose you have just inherited $10,500 and are considering different options for investing the money to maximize your return. If you are risk-neutral (that is, neither seek out or shy away from risk), which of the following options should you choose to maximize your expected return? A. Hold the money in cash and earn zero return. B. Invest the money in a corporate bond, with a stated return of 4%, but there is a chance of 9% the company could go bankrupt. C. Put the money in an interest-bearing checking account, which earns 3%. The FDIC insures the account against bank failure. D. Loan the money to one of your friends' roommates, Mike, at an agreed upon interest rate of 7%, but you believe there is a 5% chance that Mike will leave town without repaying you.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose you have just inherited $10,500 and are considering different options for investing the money to maximize your
return.
If you are risk-neutral (that is, neither seek out or shy away from risk), which of the following options should you choose
to maximize your expected return?
A. Hold the money in cash and earn zero return.
B. Invest the money in a corporate bond, with a stated return of 4%, but there is a chance of 9% the company could go
bankrupt.
C. Put the money in an interest-bearing checking account, which earns 3%. The FDIC insures the account against bank
failure.
D. Loan the money to one of your friends' roommates, Mike, at an agreed upon interest rate of 7%, but you believe there
is a 5% chance that Mike will leave town without repaying you.

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