An investor has an opportunity to invest in three companies. She researched each company and collected the information in the table below. Which company would provide the best investment?

Probability of Profit and Loss by Company
Company
Loss,
Probability of Loss
Probability to Break Even
Profit,
Probability of Profit
A
$24,000, 16%
50%
$10,000, 34%
B
$12,000, 32%
40%
$21,000, 28%
C
$6,000, 23%
17%
$5,000, 60%

company A
company B
company C
All companies have a probability of loss.

Company A is the best investment decision. Why? its total probability of profit and breaking even is the greatest of all the three companies. Also, its the probability of making a profit is higher than that of making a loss.

How the Investment Decision was made

The chance that a company will not make a loss is the sum of its break-even probability and that of its profitability. This probability for all companies is given below:

Company A = 50 + 34 = 84%
Company B = 40 + 28 = 68%
Company C = 17 + 60 = 77%

The probability of Loss is highest in Company B so this is not the best option.

The probability of profit is lowest in Company C so this is not the best option. Hence, A is the best investment decision.

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