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.

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