Final answer:
Average returns are the excess returns an investor expects to earn from investments with similar risk. To calculate expected value, multiply returns by their probabilities and sum them. The safest investment has the lowest level of risk, while the riskiest investment has the highest level of risk. The investment with the highest expected return is the one with the highest expected value.
Step-by-step explanation:
b. To find the expected value for each investment, multiply the possible returns by their respective probabilities and sum them up. For example, if Investment A has a 60% chance of a 10% return and a 40% chance of a 5% return, the expected value is (0.6 * 10) + (0.4 * 5). Repeat this calculation for each investment.
c. The safest investment is typically the one with the lowest level of risk. This would be the investment that has a relatively stable return and is less affected by market fluctuations or economic uncertainties.
d. The riskiest investment is typically the one with the highest level of risk. This would be the investment that has a higher probability of experiencing significant fluctuations or loss in value.