Hey destroyer123.
Can you show us what you have tried? (Hint: Look at the possibilities for each stock)
1) A venture capitalist, willing to invest $1,000,000, has three investments to choose from. The first investment, a software company, has a 10% chance of returning $5,000,000 profit, a 30% chance of returning $1,000,000 profit, and a 60% chance of losing the million dollars. The second company, a hardware company, has a 20% chance of returning $3,000,000 profit, a 40% chance of returning $1,000,000 profit, and a 40% chance of losing the million dollars. The third company, a biotech firm, has a 10% chance of returning $6,000,000 profit, a 70% of no profit or loss, and a 20% chance of losing the million dollars.
- a. Construct a PDF for each investment.
- b. Find the expected value for each investment.
- c. Which is the safest investment? Why do you think so?
- d. Which is the riskiest investment? Why do you think so?
- e. Which investment has the highest expected return, on average?
Please help me out with the answer. Thanks so much !