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A financial advisor has recommended two possible funds for inv


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A financial advisor has recommended two possible funds for investment: Fund X and Fund Y. The return that will be achieved by each of these depends on whether the economy is good, fair, or poor. A payoff table has been constructed to illustrate this situation:

 


 

State of Nature

Investment

Good Economy

Fair Economy

Poor Economy

Fund X

$13,000

$8,300

-$6,000

Fund Y

$14,500

$10,000

$0

Probability

0.33

0.45

0.22


 


  1. Draw the decision tree to represent his situation. You may draw your tree on paper and submit a scanned image to the last question.)
  2. Perform the necessary calculations to determine which of the two funds is better. Which one should you choose to maximize the expected value?

 

 


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Solution #00070226

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A financial advisor has recommended two possible funds for inv.zip

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This paper was answered on 21-Sep-2019

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