# Question

One of your colleagues has $2000 available to invest. Assume that all of this money must be placed in one of three investments: a particular money market fund, a stock, or gold. Each dollar your colleague invests in the money market fund earns a virtually guaranteed 3% annual return. Each dollar he invests in the stock earns an annual return characterized by the probability distribution provided in the file P06_46.xlsx. Finally, each dollar he invests in gold earns an annual return characterized by the probability distribution given in the same file.

a. If your colleague must place all of his available funds in a single investment, which investment should he choose to maximize his expected earnings over the next year?

b. Suppose now that your colleague can place all of his available funds in one of these three investments as before, or he can invest $1000 in one alternative and $1000 in another. Assuming that he seeks to maximize his expected total earnings in one year, how should he allocate his $2000?

a. If your colleague must place all of his available funds in a single investment, which investment should he choose to maximize his expected earnings over the next year?

b. Suppose now that your colleague can place all of his available funds in one of these three investments as before, or he can invest $1000 in one alternative and $1000 in another. Assuming that he seeks to maximize his expected total earnings in one year, how should he allocate his $2000?

## Answer to relevant Questions

Consider a population of 2000 individuals, 800 of whom are women. Assume that 300 of the women in this population earn at least $60,000 per year, and 200 of the men earn at least $60,000 per year. a. What is the probability ...A company is considering whether to market a new product. Assume, for simplicity, that if this product is marketed, there are only two possible outcomes: success or failure. The company assesses that the probabilities of ...Many decision problems have the following simple structure. A decision maker has two possible decisions, 1 and 2. If decision 1 is made, a sure cost of c is incurred. If decision 2 is made, there are two possible outcomes, ...Mr. Maloy has just bought a new $30,000 sport utility vehicle. As a reasonably safe driver, he believes that there is only about a 5% chance of being in an accident in the coming year. If he is involved in an accident, the ...Sharp Outfits is trying to decide whether to ship some customer orders now via UPS or wait until after the threat of another UPS strike is over. If Sharp Outfits decides to ship the requested merchandise now and the UPS ...Post your question

0