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Part 1

Suppose you visit with a financial advisor, and you are considering investing some of your wealth in one of three investment portfolios: stocks, bonds, or commodities. Your financial advisor provides you with the following table, which gives the probabilities of possible returns from each investment:

Stocks		Bonds		Commodities
Probability	Return	Probability	Return	Probability	Return
0.3	10%	0.6	10%	0.25	16%
0.2	12.5%	0.4	7.5%	0.2	15%
0.3	6.7%			0.25	6%
0.2	7.5%			0.25	4%
				0.05	0%

Part 2

The expected return on the stock portfolio is enter your response here%. (Round your response to the nearest whole number.)

Part 3

The expected return on the bond portfolio is enter your response here%. (Round your response to the nearest whole number.)

Part 4

The expected return on the commodities portfolio is enter your response here%. (Round your response to one decimal place.)

Part 5

To maximize your expected return, you should choose:

A.

stocks.

B.

bonds.

C.

commodities.

D.

All of the portfolios have the same expected return.

Part 6

If you are risk-averse and have to choose between the stock and the bond investments, you should choose:

A.

the stock portfolio because of greater expected return.

B.

the stock portfolio because there is less uncertainty over the outcome.

C.

the bond portfolio because of greater expected return.

D.

the bond portfolio because there is less uncertainty over the outcome.