Read the notes in module 1 on risk modeling before you attempt this assignment. Evaluate the risk of the following investments. (Show your work.)

1.You are considering the following 2 investments: Investment 1 of $100,000 has the following returns: year 1 - $15,000 year 2 - $5,000 Year 3 - $ 25,000 year 4 - $1,000 Investment 2 of $100,000 has the following returns: year 1 - $ 10,000 year 2 - $ 11,000 year 3 - $ 12,000 Year 4 - $ 9,000 Which investment is more risky and why? Which investment has the highest returns?

2. You invest $100,000 in a stock and have the following expectations: If the economy stays the way it is right now (a 40% probability), you can expect an 8% return. If the economy falls (a 35% probability), you can expect a 1% return. If the economy booms (a 25% probability), you can expect a 40% return. What would be your expected return?