10 Risky Investments Copyright © 2026 Pearson Education, Inc. Risky Investments (50 – 60 minutes) Learning Objective(s): Students will be able to weigh the possible outcomes of a decision using probabilities, expected values, and standard deviations. Materials needed: Student pages: Risky Investments Calculator Lesson Procedure: Warm–Up 10 minutes Prompt: What are some factors that make money investments have more risk? What investments are more or less risky? Discuss: types of investments, risk Guided Instruction 15 minutes Present: scenario for Risky Investments. Example: An investment in a certain stock has a 30% probability of gaining 30%, a 30% probability of losing 10%, and a 40% probability of staying at the same level after 3 years. What is the expected value? 6% What is the standard deviation? 0.162 or 16.3% How risky is this investment? It is risky, but not as risky as some investments can be. A standard deviation of 16.3% is fairly high. Review: key terms –expected value, standard deviation expected value: the sum of all returns times their probabilities. standard deviation: for an investment, √∑((value of outcome – expected value)2 – probability of outcome) Independent Practice 20 minutes Distribute: student activity Risky Investments Allow students to work individually or in pairs. Have students support each other during the activity. Remind students to use feedback to improve their calculations, recognizing errors and making new suggestions. Remind students to be courteous and use classroom-appropriate language. Closure 10–15 minutes Review Answers: 1. The expected value is to lose 15% and have $8,500 after 2 years. 2. The expected value is to gain 9.5% and have $10,950 after 2 years. 3. The standard deviation for investing in the technology stock is 0.32. 4. The standard deviation for investing in the index fund is 0.106. 5. For the technology stock, 68% of returns fall between a 47% loss and 17% gain; For the index fund, 68% of returns fall between about a 1.1% loss and a 20.1% gain. 6. The standard deviation for the technology stock is much higher, which means it has more risk. It has a chance to go up a lot but also a chance to go down a lot. The index fund has a lower standard deviation, so it is likely that money would not be lost, but a very high gain is not likely. 7. While the technology stock does offer the possibility of very large returns, it is more likely to lose money. The reward could be higher but the risk is much higher. Diversifying into the index fund may be a better decision because it has less risk and a positive expected value, and within one standard deviation there is no loss. The reward is lower, but the risk is much lower. Discuss: How might a longer period of time impact this decision? How would a shorter period of time impact it?
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