Final answer:
The board of directors of an automobile company seeking a low-risk investment is most likely to opt for a project with low risk and moderate return. The third investment, with an expected value of $400,000 and the lowest probability of loss, is the safest. In contrast, the first investment is the riskiest with the highest probability of loss, while the second offers the highest expected return but with increased risk.
Step-by-step explanation:
The board of directors of a leading automobile company is considering which investment project to undertake, prioritizing low risk. Given the options available, the board is most likely to choose a project with low risk and moderate return. This is because the tradeoff between return and risk frequently impacts financial investor decisions. Investments with high return on investment typically come with higher risk, and projects with uncertain outcomes are deemed risky as well. Therefore, the safest investment would be one that offers a steadier, albeit potentially lower, return while minimizing the potential for losses.
The expected value for each investment is as follows: the first investment is $200,000, the second is $600,000, and the third is $400,000. Considering the probability of loss, the third investment is deemed the safest as it has the lowest probability of loss, while the first investment is the riskiest due to its higher probability of loss. The second investment has the highest expected return, on average, but with that comes increased risk.
When considering household investment choices like bank accounts, bonds, and stocks, there is inevitably a tradeoff involved. Bank accounts carry very low risk and low returns, whereas bonds offer higher returns with higher risk, and stocks are the riskiest with the potential for the highest returns. Ultimately, choices about risk and return are subjective and can be influenced by the investor's time frame for the investment.