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 stock market?
A) $300
B) $1,300
C) $50
D) $1,050

Question

Quizplus · Accepted Answer

The expected wealth is calculated by multiplying the probability of each outcome by its respective payoff and summing these products: (0.10 * $3000) + (0.90 * $0) = $300.

Suppose Nara Could Invest Her $1000 in a Savings Account