Question

Richelieu Specialty Paints has been quite successful and has $1,250,000 cash to be invested. Amanda and her management team have developed four potential investments in addition to leaving the cash in a low-interest deposit. The four new opportunities are:

1. Purchase some shares of a major supplier (25% risk of total loss, 13% potential return)
2. Invest in the research and development of a new product (50% risk of total loss, 55% potential return)
3. Buy a selection of corporate bonds (10% risk of total loss, 7% potential return)
4. Buy a selection of government bonds (1% risk of total loss, 4.25% potential return)

Answer 1

Government bonds are the best investment opportunity for Richelieu Specialty Paints as they have the lowest risk of total loss and a respectable potential return. Hence answer is 4. Buy a selection of government bonds (1% risk of total loss, 4.25% potential return).

Step-by-step explanation:

The Best Investment Opportunity for Richelieu Specialty Paints

Richelieu Specialty Paints has $1,250,000 cash to invest and four potential investment options. Let's analyze the risks and potential returns of each option:

Shares of Major Supplier: This investment has a 25% risk of total loss and a 13% potential return.

Research and Development of a New Product: This investment has a 50% risk of total loss and a 55% potential return.

Corporate Bonds: This investment has a 10% risk of total loss and a 7% potential return.

Government Bonds: This investment has a 1% risk of total loss and a 4.25% potential return.

Based on risk and potential return, it would be wise for Richelieu Specialty Paints to invest in government bonds as they have the lowest risk of total loss and a respectable potential return.