the image shows gales investments during one year. what does the information demonstrate about gales…

the image shows gales investments during one year. what does the information demonstrate about gales investments? investments during one year gale starts with $1,000. gales investments: - savings account: $200, 1% return - mutual fund: $600, 7% return - stock: $200, - 10% return value 1 year later: $1,024 profit: $24 if she had purchased only the stock and had not diversified her investments, she would have lost money. if she had diversified her investments further, her profits would have been considerably larger. if she had put money in her savings account only and had not diversified, her profits would grow. if she had diversified her investments further, she would have reduced her risk but made less of a profit.

the image shows gales investments during one year. what does the information demonstrate about gales investments? investments during one year gale starts with $1,000. gales investments: - savings account: $200, 1% return - mutual fund: $600, 7% return - stock: $200, - 10% return value 1 year later: $1,024 profit: $24 if she had purchased only the stock and had not diversified her investments, she would have lost money. if she had diversified her investments further, her profits would have been considerably larger. if she had put money in her savings account only and had not diversified, her profits would grow. if she had diversified her investments further, she would have reduced her risk but made less of a profit.

Answer

Brief Explanations:

  • Analyze each option:
    • Option 1: The stock has a - 10% return. If she only bought stock, with $200 invested in stock (from total $1000, assume original amounts as per given: savings $200, mutual fund $600, stock $200). A - 10% return on $200 (stock) would mean she gets $200\times(1 - 0.1)=$180$ from stock part. If no diversification (all $1000 in stock), she would have $1000\times(1 - 0.1)=$900$, a loss.
    • Option 2: There is no information to suggest that further diversification would lead to "considerably larger" profits. The data given is for three types of investments.
    • Option 3: Savings account has a 1% return. $200 in savings gives $200\times(1 + 0.01)=$202$. If all $1000 in savings, she gets $1000\times(1+0.01)=$1010$, profit of $10$. But original total profit is $24$ (from diversified portfolio: savings return: $200\times0.01 = 2$, mutual fund return: $600\times0.07=42$, stock return: $200\times(- 0.1)=-20$, total $2 + 42-20=24$). So non - diversified (only savings) gives less profit than the diversified portfolio in the table.
    • Option 4: There is no data to support that further diversification would reduce risk and give less profit. The current data is for three investments.

Answer:

If she had purchased only the stock and had not diversified her investments, she would have lost money.