Which of the Following Investments Would You Prefer

question 47

Multiple Choice

Which of the following investments would you prefer?

• A)An investment earning 10 percent for 20 years
• B)An investment earning 8.5 percent for 20 years
• C)An investment earning 5 percent for 40 years
• D)An investment earning 3 percent for 40 years

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Definitions:

Expected Income

The amount of money an individual anticipates earning over a specified future period, often based on current income and future prospects.

Expected Value

Probability-weighted average of the payoffs associated with all possible outcomes.

Expected Returns

The average return an investor anticipates receiving from an investment, taking into account the probability of different outcomes.

Probability

A measure of the likelihood that an event will occur, often expressed as a number between 0 and 1, where 0 means impossibility and 1 indicates certainty.