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You have gotten your dream job, which comes with the benefit of a 401(k) plan. You...

  1. You have gotten your dream job, which comes with the benefit of a 401(k) plan. You are trying to figure out how to make your investments. While the stock market has been very strong lately, you are afraid it is overdue for a correction. On the other hand, you also want to continue gaining if the stock market keep climbing. You have done a fair bit of analysis and come up with the following payoff table, for the gain or loss on your investment of $5,000 after the next year.

  2. Decisions

    State of economy

    Weak Economy

    Moderate Economy

    Strong Economy

    Buy Bond Funds

    $200

    $200

    $175

    Buy Stock Funds

    -$1000

    $300

    $500
  3. Calculate the EV for the possible decisions.
  4. Which decision would you make if you were to use a probability method? Why?

  5. What is the expected value WITHOUT perfect information?

  6. What is the expected value WITH perfect information?

  7. What is the expected value OF perfect information (EVPI)?

Math   Statistics-And-Probability   
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