Mickey Johnson is considering investing some money that he inherited. The following payoff table gives the Â Â Â Â Â Â Â Â Â Â Â Â Â profits...

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Mickey Johnson is considering investing some money that heinherited. The following payoff table gives theÂ Â Â Â Â Â Â Â Â Â Â Â Â profits that would be realized during the next year for each ofthree investment alternatives Mickey isÂ Â Â Â Â Â Â Â Â Â Â Â Â considering (You should calculate the results to supportyour conclusions to get the credit): (10 points)
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â State of Nature
Decision
Alternative
Good
Economy
Poor
Economy
Stock market
50,000
-20,000
Bonds
30,000
15,000
CDs
20,000
20,000
Probability
0.8
0.2
What decision would maximize expected profits? (4 points)
What is the maximum amount that should be paid for a perfectforecast of the economy? (3 points)
Develop an opportunity loss table for the investment problemthat Mickey Lawson faces. What decision would minimize the expectedopportunity loss? What is the minimum EOL? (3 points)

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4.0 Ratings (595 Votes)

a Based on the given data we find the Expected Monetary Valuefor each alternative as shown belowAs seen from above the decision of Stock Market would maximizethe expected profitsTheabove table in the form of formulas is See Answer

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	Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â State of Nature
Decision Alternative	Good Economy	Poor Economy
Stock market	50,000	-20,000
Bonds	30,000	15,000
CDs	20,000	20,000
Probability	0.8	0.2