Final answer:
Mary aims for a higher return on investment, and potentially high-risk investments do not necessarily guarantee low returns—they can also lead to high returns. Calculating expected values helps investors understand which investment aligns with their desired risk level and offers the highest potential returns.
Step-by-step explanation:
Mary undoubtedly plans to invest her money to achieve a higher return on investment (ROI). The goal of most investments is to maximize returns while managing risk. Investment choices generally include different assets such as stocks, bonds, and savings accounts, each offering varying degrees of potential returns and risks. For instance, over time, stocks have historically provided a higher average return compared to bonds or savings accounts. However, this higher return comes with greater risk, as stocks can be much more volatile. Similarly, while high-risk investments can indeed lead to low returns, especially if those risks are not managed properly, it is not a rule that high risk equates to low return. On the contrary, high-risk investments can also result in high returns.
Calculating expected values for potential investments is critical for investors to assess risks against possible gains. For example, considering the investment options for a venture capitalist listed in the question (a software company, a hardware company, and a biotech firm), each presents different scenarios with various probabilities of profits and losses, affecting both the expected values and the risks associated with each investment. A safest investment would be the one with the lowest probability of loss, while the riskiest is the one with the highest probability of loss. The expected value calculation enables investors to determine which investment has the highest expected return and aligns with their risk tolerance and investment goals.