You have $1,000 that you can invest. If you buy Ford stock, you face the following returns and probabilities from holding the stock for one year: with a probability of 0.2 you will get $1,500; with a probability of 0.4 you will get $1,100; and with a probability of 0.4 you will get $900. If you put the money into the bank, in one year's time you will get $1,100 for certain.
a. What is the expected value of your earnings from investing in Ford stock?
b. Suppose you are risk-averse. Can we say for sure whether you will invest in Ford stock or put your money into the bank?