Question
You have the savings of $100K and no other wealth. You are considering whether to use all your savings to start a lawn mowing business
You have the savings of $100K and no other wealth. You are considering whether to use all your savings to start a lawn mowing business or whether to invest this money in the market index. If you start the lawn mowing business, you estimate that the expected return from this business will be 30% and the return standard deviation will equal 40%. Currently, the risk-free rate is 2%, the expected return on the market index is 15%, and the standard deviation of the market index is 20%. Which is a better investment: the lawn moving business or the market index? Please explain.
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