Question
Decision Analysis 1. An investor has a choice between four investments. The profitability of the investments...
Decision Analysis
1. An investor has a choice between four investments. The profitability of the investments depends upon the market. The payoff table is given below for different market conditions.
|
|
States of Nature |
||
|
Investments |
Market Increases |
Market Stays the Same |
Market Decreases |
|
A |
100,000 |
50,000 |
-40,000 |
|
B |
70,000 |
30,000 |
-10,000 |
|
C |
40,000 |
15,000 |
10,000 |
|
D |
20,000 |
20,000 |
20,000 |
A market economist has stated that there is a 25% chance that the market will stay the same, a 35% chance that the market will decrease, and a 40% chance that the market will increase.
a. What is the expected value for each investment?
b. Which investment is best?
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