What is the expected value of your earnings from investing

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Question: You have $1,000 that you can invest. Ifyou buy Ford stock, you face the following returns and probabilities from holding the stock for one year: with a probability of 0.2 you will get $1,500; with a probability of 0.4 you will get $1,100; and with a prob ability of 0.4 you will get $900. Ifyou put the money into the bank, in one year's time you will get $1,100 for certain.

a. What is the expected value of your earnings from investing in Ford stock?

b. Suppose you are risk-averse. Can we say for sure whether you will invest in Ford stock or put your money into the bank?

Reference no: EM133633049

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