Solutions Statistics

Suppose that one of your colleagues has $2000 available to invest. Assume that all of this money mus

Question: Suppose that 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 6% annual return. Each dollar he invests in the stock earns an annual return characterized by the probability distribution provided in the file P07_44 xlsx . Finally, each dollar he invests in gold earns an annual return characterized by the probability distribution given in the 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?

Investment data

Distribution of Annual Returns for Given Stock
Return	Probability
0.00	0.10
0.06	0.20
0.12	0.40
0.18	0.20
0.24	0.10

Distribution of Annual Returns for Gold
Return	Probability
-0.36	0.10
-0.12	0.20
0.12	0.40
0.36	0.20
0.60	0.10