申論題

1. (14分) Suppose you have just inherited S10,400 and are considering the following options for investing the money to maxinize your return:
Option 1: Put the money in an interest-bearing checking account that earns 3%. The FDIC insures the account against bank failure.
 Option 2: Invest the money in a corporate bond with a stated return of 6%, although there is a 10% chance the company could go bankrupt.
Option 3: Loan the money to one of your friend's roommates, Ayesha, at an agreed-upon interest rate of 7%, but you believe there is a 7% chance that she will leave town without repaying you. Option 4: Hold the money in cash and earn zero return.

a. If you are risk-neutral (that is, neither seck out nor shy away from risk), which of the four options should you choose to maximize your expected return? (Hint: To calculate the expected return of an outcome, multiply the probability that an event will occur by the outcome of that event and then add them up.) (8 分)