A financial investor has $25,000 to invest. The choices have been narrowed down to the following two options.
Option 1: Invest in a foreign bond that will mature in one year. This will entail an immediate brokerage fee of $150. For simplicity, assume that the bond will provide interest of $2, 450, $2,000, or $1, 675 over the one-year period and that the probabilities of these occurrences are assessed to be 0.25, 0.45, and 0.30, respectively.
Option 2: Invest in a $25,000 certificate with a savings-and-loan association. Assume that this certificate has an effective annual rate of 7.5%. Which form of investment should the investor choose in order to maximize his expected financial gain?