I have $400 to invest.I am considering buying a CD (which will pay 6%), but I also just got a prospectus from a corporation selling bonds, which promises 24%.I don't
know where to put my money! That is probably because:
A)I don't know what the expectation value of the CD is.
B)I don't know what the expectation value of the bond is.
C)I don't know the probability of the corporation making good on the bond.
D)I don't know what the return on the bond is.

Question

I have $400 to invest.I am considering buying a CD (which will pay 6%), but I also just got a prospectus from a corporation selling bonds, which promises 24%.I don't
 know where to put my money! That is probably because:
A)I don't know what the expectation value of the CD is.
B)I don't know what the expectation value of the bond is.
C)I don't know the probability of the corporation making good on the bond.
D)I don't know what the return on the bond is.

Quizplus · Accepted Answer

The correct answer is C because the expectation value of the bond (which is essentially the expected return considering the risk of default) is uncertain without knowing the probability of the corporation making good on its promise to pay the 24%. Understanding the risk associated with the bond is crucial for making an informed investment decision.

I Have $400 to Invest