- An investor plans to put RM50 000 in one of four investments. The return on each investment depends on whether next year’s economy is strong or weak. TABLE 3 summarizes the possible payoffs (in RM) for the four investments.
TABLE 3
|
|
Next year’s economy
|
|
Investment
|
Strong
|
Weak
|
|
Certificate of deposit
|
6 000
|
6 000
|
|
Office complex
|
15 000
|
5 000
|
|
Land speculation
|
33 000
|
-17 000
|
|
Technical school
|
5 500
|
10 000
|
Let V, W, X, and Y denote the payoffs for the certificate of deposit, office complex, land speculation, and technical school, respectively. Then V, W, X, and Y are random variables. Assume that next year’s economy has a 40% chance of being strong and a 60% chance of being weak.Which investment would you suggest for the investor? Justify your answer.