Risk Expected Return
2) Given the following two investment options, explain what an investor would choose and why:
Investment 1, an investment that is guaranteed a 6.5 percent return.
Investment 2, an investment that has a probability 0.25 of earning 5%, a 0.50 probability of earning 10%, and a 0.25 probability of earning 0%.
3) Explain which of the investments below are riskier and why:
4) For the class of investors below, explain which investment vehicle they are likely to choose based on its risk profile (stock, corporate bond, and Treasury bond):
A retiree that is looking for a safe investment
A 28-year-old MBA graduate looking for high returns
A forty-something professional looking for good investment income