Reference no: EM1396544
An investor is considering 4 investments, A, B, C and D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The investor has estimated the probability of a declining economy at 70% and an expanding economy at 30%. The returns from investments A, B, C and D are 90%, 50%, 45% and 20%, respectively if the economy expands and -10%, 20%, 40% and 15%, respectively if the economy declines.
a) Which investment should be selected according to the expected monetary value decision rule?
b) Which investment should be selected according to the MAXIMAX decision rule?
c) Which investment should be selected according to the MAXIMIN decision rule?
d) Suppose the investor is to invest a total of $10,000, what is the expected value of perfect information for investor
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