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 probabilitydistribution provided in the Attached DataFile. 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?
This solution considers which investment should maximize the expected earnings over the next year.