Final answer:
To determine which investment to choose if you emphasize the minimization of risk over high average returns, we need to consider the expected value, safety, riskiness, and average expected return of each investment.
Step-by-step explanation:
To determine which investment to choose if you emphasize the minimization of risk over high average returns, we need to consider the expected value, safety, riskiness, and average expected return of each investment.
- To find the expected value, we multiply the probability of each outcome by its corresponding value and sum the results. For example, if investment A has a 50% chance of gaining $200,000 and a 50% chance of losing $100,000, the expected value would be (0.5 * $200,000) + (0.5 * -$100,000) = $50,000.
- Next, to determine the safest investment, we look at the probability of loss. The investment with the lowest probability of loss is considered the safest. In this case, investment C has the lowest probability of loss and is the safest.
- Similarly, to determine the riskiest investment, we look at the probability of loss. The investment with the highest probability of loss is considered the riskiest. In this case, investment A has the highest probability of loss and is the riskiest.
- Lastly, to find the investment with the highest average expected return, we compare the expected values of each investment. The investment with the highest expected value is considered to have the highest average return. In this case, investment B has the highest expected value and thus the highest average return.
In conclusion, if you emphasize the minimization of risk over high average returns, you should choose investment C as the safest option, investment A as the riskiest option, and investment B as the option with the highest expected return.