MACRO ECON HELP! What will be your actual return if you buy the snowboard manufacturer's stock?

Question

Assume that you have $1,000 to invest and can only invest it in two companies, a snowboard manufacturer or a mountain bike manufacturer. The rate of return of each stock depends on whether it snows, as shown in the following table.

~~~~~~~~Snow(90%chance) no snow(10%chance)

snowbrd manufac.~~~~10% ~~~~~~~~~~~~ 0%

bike manufac._~~~~~~~ 0% ~~~~~~~~ 90%

What will be your actual return if you buy the snowboard manufacturer's stock?

A. $100 if it snows, $90 if it does not snow

B. $100 if it snows, nothing if it does not snow

C. $90, no matter what

If you invest all your money in the snowboard manufacturer's stock, what is your expected return? That is, how much money do you expect to make on the investment?

A. $50

B. $10

C. $100

D. $90

Answer 1

B. $100 if it snows, nothing if it does not snow

D. $90 ($100 x 90% = $90)

C. Yes, invest $900 in the snowboard manufacturer's stock and $100 in the bike manufacturer's stock.