Decision Alternatives Discussion Post investment option stock market purchase gold

Anonymous
timer Asked: Jan 6th, 2019
account_balance_wallet $10

Question Description

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 economyProbabilityMarket ReturnGold Return
Boom0.1525%(-30%)
Moderate Growth0.3520%(-9%)
Week Growth0.255%35%
No Growth0.25(-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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Tutor Answer

Robert__F
School: Carnegie Mellon University

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