(Expected rate of return)James Fromholtz is considering whether to invest in a newly formed investment fund. The fund's investment objective is to acquire home mortgage securities at what it hopes will be bargain prices. The fund sponsor has suggested to James that the fund's performance will hinge on how the national economy performs in the coming year. Specifically, he suggested the following possible outcomes:

State of Economy

Probability

Fund Returns

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Rapid expansion and recovery

10%

100%

Modest growth

30%

45%

Continued recession

50%

20%

Falls into depression

10%

100%

a. The expected rate of return from this investment opportunity is ________ %. (Round to two decimal places)

b. Would you be interested in making such an investment?(Select the best choice below.)

A. Your interest in making such an investment would depend on your risk tolerance. If you do not like risk you should avoid this investment, however if you do not mind risk you may want to make this investment.

B. Yes, I would be interested in making such an investment. The economy is most likely to begin a rapid expansion and recovery.

C. No, I would not be interested in making such an investment. The economy is most likely to sink into a depression.