You have $1,000 that you can invest. If you buy General Motors stock, then, in one year's time: with a probability of 0.4 you will get $1,600; with a probability of 0.4 you will get $1,100; and with a probability of 0.2 you will get $800. 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 General Motors stock?
b. Suppose you prefer putting your money into the bank to investing it in General Motors stock. What does that tell us about your attitude to risk?