Answer to Question #18064 in Statistics and Probability for deloris

Question

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. Suppose that the percentage annual return you obtain when you invest a dollar in gold or the

Boom****************0.15************25%*************(-30%)
Moderate Growth******0.35************20%***************(-9%)
Weak Growth*********0.25*************5%**************35%
No Growth***********0.25***********(-14%)**************50%

Based on the expected return, would you rather invest your money in the stock State of Economy***Probability***MarketReturn***GoldReturn
market or in gold? Why?

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