Question

Which of the following should you pick if we assume you like money? Investing $10,000 in a) savings account with a 1% annual interest rate; b) investing in the stock market with an 70% chance of an expected rate of return of 4.5%; or c) giving your money to your brother-in-law Darrell who swears he can double our money in just a couple of weeks with a sweet deal he heard about online (p = .10)?

Answer 1

Analysis of investment option to invest $10,000:

1. Investment in savings account with 1% annual interest rate gives us $100 interest income without risk. Investment in savings are for the person who are risk averse because savings account investment are risk free investment. It gives less return, so person who loves risk for earning more return will not going to invest in savings account.

1. Investment in stock market are risky but at the same time it will provide more return also. In this investment plan there are some risk that it will have only 70% chance that it will provide 4.5% return on investment and 30% chance is not to get 4.5% return. This type of investment is for the person who love risk to some extent.

1. This option of investment for doubling the money in couple of weeks is very risky as it is not the organized sector investment industry and have not any legal existence. This type of investment is more risky then playing lottery. In this type of investment only the person who can invest is high risk lover, high confidence of his/her fate and who have dream to change his fate overnight. This type of investment are unrealistic and unethical.

Therefore, selecting these option of investment will depend on the type of persons whether they have risk averse or risk lover.