Final answer:
The security investment has the highest expected annual return at 80.00%, followed by the stock investment at 26.00%, and the note investment at 6.38%. Investments with higher returns generally carry higher risks.
Step-by-step explanation:
When assessing investments, the expected return is an important metric that helps in comparing the potential profitability of different opportunities. We will calculate and rank the expected returns for the three given investments
Stock Investment: Purchase price is $50 and the selling price after three years is $80. Annually, it pays a dividend of $3 per share. The total return includes the capital gain ($80 - $50 = $30) plus dividends for three years (3 years * $3 = $9), leading to a total gain of $39 on a $50 investment over 3 years. The approximate annual return is: (($39 / $50) / 3) * 100 = 26.00%.Security Investment: The purchase price is $25 and the selling price after two years is $65 with no current income. The capital gain is $40, and the investment duration is 2 years, which results in an approximate annual return of: (($40 / $25) / 2) * 100 = 80.00%.
Note Investment: It's purchased for $940 with a par value of $1,000 that matures in 1 year, resulting in a gain of $60. The approximate annual return is: ($60 / $940) * 100 = 6.38%.
The investments ranked by their expected returns from highest to lowest are: Security Investment (80.00%), Stock Investment (26.00%), and Note Investment (6.38%).
Assessment of Risk and Return
The safest investment is likely the note investment due to the fixed interest rate and short maturity period. The riskiest investment could be the stock or security based on market volatility and the absence of current income for the security, respectively. The security investment has the highest expected return, but this is paired with a potentially higher risk given its zero current income and dependency on market price increase.