Answer:
1. $2,400
2. Investment 2
Explanation:
For computing the expected return for the investment 2, we have to apply the formula which is shown below:
= Â Probability for Scenario 1 Ă— return in Scenario 1 + Probability for Scenario 2 Ă— return in Scenario 2 + Probability for Scenario 3 Ă— return in Scenario 3
= 0.2 Ă— $6,000 + 0.3 Ă— $4,000 + 0.5 Ă— 0
= $1,200 + $1,200
= $2,400
From the calculations we use the investment 2 as Paul is uncertain about the return for investment 1