Question

QUESTION 35

1. Which is the recommend decision alternative using the conservative 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

1.5 points   

QUESTION 36

1. 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

   Suppose that before making the investment decision, you consider hiring an economist who can provide either U = "unfavorable" or F = "favorable" report concerning the future economic conditions. Assume that the following information is also available:

   P(U/PE) = 0.6   P(F/PE) = 0.4

   P(U/GE) = 0.2   P(F/GE) = 0.8

   What is the posterior probability P(PE/F)?

   	a.	0.238
   	b.	0.047
   	c.	0.089
   	d.	0.111
   	e.	None of the above

QUESTION 38

1. 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

   In the light of the expected value approach, the expected profit for the best decision alternative is

   	a.	1200
   	b.	3600
   	c.	4000
   	d.	5100
   	e.	None of the above

1.5 points   

QUESTION 39

1. 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

   Suppose that before making the investment decision, you consider hiring an economist who can provide either U = "unfavorable" or F = "favorable" report concerning the future economic conditions. Assume that the following information is also available:

   P(U/PE) = 0.6   P(F/PE) = 0.4

   P(U/GE) = 0.2   P(F/GE) = 0.8

   What is the best decision alternative when a favorable report is provided by the economists?

   	a.	Stocks
   	b.	Money Market
   	c.	Bonds
   	d.	Both Money Market and Stocks
   	e.	None of the above

1.5 points   

QUESTION 40

1. Which is the recommend decision alternative using the optimistic 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.	D3
   	c.	D4
   	d.	D3
   	e.	None of the above

Answer all questions

Answer 1