Suppose Nara Could Invest Her $1000 in a Savings Account

question 71

Multiple Choice

Suppose Nara could invest her $1000 in a savings account or she could invest in the stock market. After one year, the savings account has a guaranteed 5 percent interest rate and the stock market has a 10 percent chance of tripling her money, and 90 percent chance of losing it all. To give Nara the maximum expected wealth, what should she do?

• A) She should invest all of her money in the stock market.
• B) She should invest all of her money in the savings account.
• C) She should invest half of her money in the savings account and half in the stock market.
• D) She should only invest her money in the stock market if she is risk averse.

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Definitions:

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