# A financial investor has an investment portfolio. A bond in her investment portfolio will mature next month

## Question:

A financial investor has an investment portfolio. A bond in her investment portfolio will mature next month and provide her $25,000 to reinvest. The choices for reinvestment have been narrowed to the following two options:

- Option 1: Reinvest in a foreign bond that will mature in one year. This transaction will entail a brokerage fee of $150. For simplicity, assume that the bond will provide interest over the one‐year period of $2,450, $2,000, or $1,675 and that the probabilities of these occurrences are assessed to be 0.25, 0.45, and 0.30, respectively.
- Option 2: Reinvest in a $25,000 certificate with a savings and loan association. Assume that this certificate has an effective annual rate of 7.5%. Which form of reinvestment should the investor choose in order to maximize her expected financial gain?

A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...

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