Expected returns-stock-bonds and commodities

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Suppose you visit with a financial adviser, and you are considering investing some of your wealth in one of three investment portfolios: stocks, bonds, or commodities. Your financial adviser provides you with the following table, which gives the probabilities of possible returns from each investment:

Stocks Bonds Commodities

Probability Return Probability Return Probability Return

0.25 12% 0.6 10% 0.2 20%

0.25 10% 0.4 7.50% 0.25 12%

0.25 8% 0.25 6%

0.25 6% 0.25 4%

0.05 0%

A. Which investment should you choose to maximize your expected returns: Stock, Bonds, commodities?

B. If you are risk-averse and had to choose between the stock or the bond investments, you would choose, and why?

Reference no: EM13826007

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