Question

Tony and Yvette are planning to invest some of their savings in bonds. They went to a bank to talk to their investment advisor and they were given two investment options on bonds: the first type of bond pays a 6% interest but with a 3% default rate while the second type pays interest at a rate of 5% with a defaul rate of 2%. In case of a bond default, all the money invested in bonds will be lost. Let X be the returns on the first bond and let Y be the returns on the second bond. Tony and Yvette plan to invest P200,000 of their savings in bond.

a.) find the expected values of X and Y
b.) based on the resukts in (a), which bond should tony and yvette invest in?