Investing based on expected return of money

[Timcago]

You have 5000 to invest in one of three bonds. Bond A pays 5.25% simple interest at maturity, but will default (lose all value) 1.5% of the time. Bond B Pays 4.36% simple interest with a .9% default rate. Bond C pays 8.99% simple interest with a 6.8% default rate. Which is the better investment, by expected return of money? Justify your answer.

Can anyone solve this one?

 

[arthur ohlsten]

expected gain,E = gain times probability of gain - loss times probability of loss.

1)
E=$5000[.0525][.985]-5000[.015]
E=$5000[.0517125-.015]
E=$5[37]
E=$185

2)
E=$5000[.0436][.991]-$5000[.009]
E=$5000[.0432076-.009]
E=$5[42.3]
E=$211.

3)
E=$5000{[.0899][1-.068]-.068}
E=$5{89.9[1-.068]-68}
E=$5{89.9[.932]-68}
E=$5{83.8-68]
E=$5[15.8]
E=$79

the second case has greatest expected return

please check math for errors
Arthur

 

[Timcago]

Thanks for the help.

 

[arthur ohlsten]

you are welcome. Remember
expected Gain = amount of gain times probability of gain - amount of loss times probability of loss
Arthur