The next two questions are based on the following information. Paul wants to cho

Question

The next two questions are based on the following information.

Paul wants to choose one of the two investment opportunities over three possible scenarios. Investment 1 will yield a return of $10,000 in Scenario 1, $2,000 in Scenario 2, and a negative return of -$5,000 in Scenario 3. Investment 2 will yield a return of $6,000 in Scenario 1, $4,000 in Scenario 2, and zero in Scenario 3. The probability for Scenario 1 is 0.2, for Scenario 2 is 0.3, and for Scenario 3 is 0.5.

Question 1 of 2

Question 2 of 2

Question 1 of 2

5.0 Points If you were to choose the investment that maximizes Paul's Expected Money Value (EMV), then you should choose __________. A.Investment 1 B.Investment 2 C.Indifferent Reset Selection

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Question 2 of 2

5.0 Points If Paul is uncertain about the return for Investment 1 in Scenario 1, then this return has to be dollars in order to make Paul indifferent between these two investments (i.e. the two investments would have the same EMV.) (Please only enter an integer and include no units.)
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Explanation / Answer

Question 1 of 2 :-   B. Investment 2

Note:- EMV will be higher of Following of Investment 1 and Invesment 2 :

Investment 1;

EMV = Scenario 1(probability* yield ) + Scenario 2 (probability* yield ) + Scenario 3(probability* yield )

= ($10000 * 0.2) + ($2000 * 0.3) + (-$5000 * 0.5)

= $2000 + 600 - 2500

= $100

Investment 2;

EMV = Scenario 1(probability* yield ) + Scenario 2 (probability* yield ) + Scenario 3(probability* yield )

   = ($6000 * 0.2) + ($4000 * 0.3) + ($0 * 0.5)

   = $1200 + 1200 + 0

   = $2400

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