Suppose Nara could invest her $1000 in a savings account or she could invest in the stock market. After one year, the savings account has a guaranteed 5 percent interest rate and the stock market has a 10 percent chance of tripling her money, and 90 percent chance of losing it all. What is Nara's expected wealth if she places her money in the savings account?
A) $1,050
B) $50
C) $300
D) $1,300

Question

Quizplus · Accepted Answer

The savings account has a guaranteed 5% interest rate, so Nara's expected wealth after one year would be $1000 + (5% of $1000) = $1,050.

Suppose Nara Could Invest Her $1000 in a Savings Account