You have $1,000 that you can invest. If you buy Ford stock, you face the following returns and probabilities from holding the stock for one year: with a probability of 0.2 you will get $1,500; with a probability of 0.4 you will get $1,100; and with a probability of 0.4 you will get $900. If you put the money into the bank, in one year’s time you will get $1,100 for certain. a) What is the expected value of your earnings from investing in Ford stock? b) Suppose you are risk-averse. Can we say for sure whether you will invest in Ford stock or put your money into the bank?

What will happen if two assets are earning the same expected return, but one is riskier than the other?

Suppose that there is a 45 percent change that George's coffee shop will make $10000 in profits in January and a 45 percent chance it will make 0 profits and a 10 percent chance that it will make -$1000 in profits (i.e., it will lose $1000). Calculate the coffee shop's expected profits

You plan to invest $1,000 in a corporate bond fund or in a common stock fund. The following table represents the annual return (per $1,000) of each of these investments under various economic conditions and the probability that each of those economic conditions will occur. Compute the expected return for the corporate bond and for the common stock fund. Show your calculations on excel for expected returns.  Compute the standard deviation for the corporate bond fund and for the common stock fund.  Would you invest in the corporate bond fund or the common stock fund? Explain.  If  choose to invest in the common stock fund and in (c), what do you think about the possibility of losing $999 of every $1,000 invested if there is depression. Explain.