question archive Mickey Lawson is considering investing some money that he inherited
Mickey Lawson is considering investing some money that he inherited
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Mickey Lawson is considering investing some money that he inherited. The following payoff table gives the profits that would be realized during the next year for each of three investment alternatives Mickey is considering:
|
STATE OF NATURE |
||
|
DECISION ALTERNATIVE |
GOOD ECONOMY |
POOR ECONOMY |
|
Stock market |
80,000 |
–20,000 |
|
Bonds |
30,000 |
20,000 |
|
CDs |
23,000 |
23,000 |
|
Probability |
0.5 |
0.5 |
a.What decision would maximize expected profits?
b.What is the maximum amount that should be paid for a perfect forecast of the economy?
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