# Question

An investor is considering three strategies for a $1,000 investment. The probable returns are estimated as follows:

• Strategy 1: A profit of $10,000 with probability 0.15 and a loss of $1,000 with probability 0.85

• Strategy 2: A profit of $1,000 with probability 0.50, a profit of $500 with probability 0.30, and a loss of $500 with probability 0.20

• Strategy 3: A certain profit of $400

Which strategy has the highest expected profit? Explain why you would or would not advise the investor to adopt this strategy.

• Strategy 1: A profit of $10,000 with probability 0.15 and a loss of $1,000 with probability 0.85

• Strategy 2: A profit of $1,000 with probability 0.50, a profit of $500 with probability 0.30, and a loss of $500 with probability 0.20

• Strategy 3: A certain profit of $400

Which strategy has the highest expected profit? Explain why you would or would not advise the investor to adopt this strategy.

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