I gave the sword to the knight, absolutely without a question! He's lowkey pulled the entire kingdom out of debt several times; so many times I was swamped by money hungry subjects, like the witch appeasing the violent ghosts or the ridiculous jester asking for 700 coins, and the knight came 3-5 times in a row to offer treasure from his adventures. By far one of my top favorite characters. He ended up bringing all the treasure back and making people happy. TOTALLY LOVE HIM.
(I never gave in to the thief. Even if I had to wait ages for the knight to come around 2nd time I played the game. Never regretted my decision:)