I posted this before and the answer I received did not match theinstructors. Wou

Question

I posted this before and the answer I received did not match theinstructors. Would someone help me understand this? Thanks

The Instructor said: Choose Plan C. (this makes sense due to thereturn amounts)
For the second part he said: Think along the lines of time value ofmoney from an engineering economic stand point)

1.8 There are three investment plans for your consideration.Each plan calls for an investment of $25,000 and the return will beone year later.
Plan A will return $27,500.
Plan B will return $27,000 or $28,000 with probabilities of 0.4& 0.6, respectively.
Plan C will return $24,000, $27,000, or $28,000 with probabilitiesof 0.2, 0.5, & 0.3, respectively.
If your objective is to maximize the expected return, which planshould you choose? Are there considerations that might be relevantother than simply the expected values?

Returns:
Plan A = $27,000
Plan B = (27,000)*(.4) + (28,000)*(.6) = $27,600
Plan C = (24,000)*(.2) + (27,000)*(.5) + (33,000)*(.3) =$28,200

Is the Return part right?

What about the second part? How would I figure that part out?
Thanks

Explanation / Answer

the return part is right

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