QUESTION 28
You would like to invest in one of the three available investment plans: money market, bonds, or stocks. The payoffs (profits) of each plan under two possible future economic conditions, PE (poor economy) and GE (good economy), are shown below. The probability of the occurrence of PE is 0.2.
PE GE
Money Market 1000 2000
Bonds 3000 2500
Stocks 2000 4500
The expected value of perfect information (EVPI) is
a. 
150 

b. 
200 

c. 
320 

d. 
450 

e. 
None of the above 
QUESTION 33
Which is the recommend decision alternative using the minimax regret approach?
Use the following payoff table for a maximization problem.
Decision Alternative 
State of nature 1 
State of nature 2 
D1 
6 
7 
D2 
–2 
2 
D3 
2 
–3 
D4 
10 
4 
a. 
D1 

b. 
D2 

c. 
D3 

d. 
D4 

e. 
None of the above 
Answer all questions
28)
expected value without information =max(EV(money market),EV(Bonds),EV(stocks))
=max(1000*0.2+2000*0.8+3000*0.2+2500*0.8+2000*0.2+4500*0.8)=max(1800 , 2600, 4000) =4000
expected value with perfect information=0.2*3000+0.8*4500=4200
The expected value of perfect information (EVPI) is 42004000 =200
option B is correct
33)
minimax regret table 
decision  S1  S2 
D1  4  0 
D2  12  5 
D3  8  10 
D4  0  3 
from above minimum of maximum regret is in D4 decision
therefore one should choose D4
option d (D4)
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