Question

You plan to invest $2,000 in a corporate stock fund or in a common fund. Under certain conditions, the yield of the fund is as follows:

Probability	Condition	Corporate Return	Common Fund Return
0.10	Recession	-$200	-$150
0.15	Stagnation	$100	$80
0.35	Slow Growth	$200	$200
0.30	Moderate Growth	$400	$500
0.10	Fast Growth	$600	$550

Question 8 (1 point)

Compute the expected return for both the corporate and common fund.

Answer 1

expected return of corporate fund =xP(x)=0.1*(-200)+0.15*(100)+0.35*200+0.3*400+0.1*600=$ 245

expected return for common fund =0.1*(-150)+0.15*80+0.35*200+0.3*500+0.1*550=$ 272