Solution-Would you rather invest your money in the stock

Would you rather invest your money in the stock market

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Reference no: EM132232989

Suppose that the percentage annual return you obtain when you invest a dollar in gold or the stock market is dependent on the general state of the national economy as indicated below. For example, the probability that the economy will be in "boom" state is 0.15. In this case, if you invest in the stock market your return is assumed to be 25%; on the other hand if you invest in gold when the economy is in a "boom" state your return will be minus 30%. Likewise for the other possible states of the economy. Note that the sum of the probabilities has to be 1--and is.

State of economy	Probability	Market Return	Gold Return
Boom	0.15	25%	(-30%)
Moderate Growth	0.35	20%	(-9%)
Week Growth	0.25	5%	35%
No Growth	0.25	(-14%)	50%

Based on the expected return, would you rather invest your money in the stock market or in gold? Why?

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The paper is in relation to decision making w.r.t investment in either of two alternatives - Gold and stock market based on their expected return provided the different state of economy the goal is to determine which is the best to invest in given the different expected states of the economy and the expected return that each of the two should have for each state of the economy.

Reference no: EM132232989

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Would you rather invest your money in the stock market

Reference no: EM132232989

Reference no: EM132232989

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