1: You receive $1,500 as part of your work compensation, which you will not spend over the next year. You evaluate the following options:

Invest $1,500 through your bank in a Certificate of Deposit (CD), which promises an APR of 6% compounded monthly;

Divide the $1,500 in two parts: 80% is deposited in your savings account, which pays an APR of 3% compounded annually; 20% is invested in shares of a new startup IMBAD. The advisor expects the shares to either grow in value by 50%, or drop in value by 20% over the next year. The two scenarios are equally likely.

Answer the following questions, detailing all the information required:

1. What is the net expected return of each of the three aforementioned in- vestment vehicles (that is, the CD, the savings account and the shares)?

2. What is the net expected return of each of the two investment strategies? Which strategy would you pick to maximize expected return?