An investor plans to put $50,000 in one of four investments. The return on each investment depends on whether next year’s economy is strong or weak. T

Yulia

Yulia

Answered question

2021-07-02

$50,000 will be invested in one of four investments by an investor. Whether or not the economy is strong or weak next year will affect the return on each investment. The potential returns on the four investments, expressed in dollars, are listed in the table below.
Document of deposit
office building
speculating on land
technical college
Let's use V, W, X, and Y to represent the rewards for the technical college, office complex, land speculation, and certificate of deposit, respectively. V, W, X, and Y are hence random variables. Assume that there is a 40% likelihood of a robust economy in 2019 and a 60% chance of a bad one. Identify each random variable's probability distribution: V, W, X, and Y. b. Ascertain each random variable's expected value. Which investment has the greatest potential return? a worst? d. What type of investment would you choose? 

Answer & Explanation

estenutC

estenutC

Skilled2021-07-03Added 81 answers

a) v|600
P(V=v)|1
w|15000 5000
P(W=w)|0.400.60
x|3300017000
P(X=x)|0.400.60
y|5500 10000
P(Y=y)|0.400.60
b) 6000, 9000, 3000, 8200
c) Office complex W, Land speculation X
d) Investment of office complex W

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