decision analysis sorular

decision analysis sorular - Suppose that you want to invest...

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Unformatted text preview: Suppose that you want to invest $10,000 in the stock market by buying shares in one of two com- panies: A and B. Shares in Company A, though risky, could yield a 50% return on investment during the next year. If the stock market conditions are not favorable (i.e., “bear” market), the stock may lose 20% of its value. Company B provides safe investments with 15% return in a “bull”_ market and only 5% in a “bear” market. All the publications you have consulted (and there is always a flood of them at the end of the year!) are predicting a 60% chance for a “bull” market and 40% for a “bear” market. Where should you invest your money?I You have been invited to play the Fortune Wheel game on television. The wheel operates electronically with two buttons that produce hard (H) or soft (S) Spin of the wheel. The wheel itself is divided into white (W) and red (R) half-circle regions. You have been told that the wheel is designed to stop with a probability of .3 in the white region and .7 in the red region.'I'|1e payoff you get for the game is Draw the associated decision tree, and specify a course of actiori. Farmer McCoy can plant either com or soybeans The probabilities that the next harvest prices of these commodities will go up, stay the same, or go down are .25, .30, and .45, re- spectively. If the prices go up, the corn crop will not $30,000 and the soybeans will net $10,000.1f the prices remain unchanged, McCoy will (barely) break even. But if the prices go down, the corn and soybeans crops will sustain losses of $35,000 and $5000, respectively. (a) Represent McCoy’s problem as a decision tree. (b) Which crop should McCoy plant? You have the chance to invest in three mutual funds: utility, aggressive growth, and glob- al. The value of your investment will change depending on the market conditions. There is a 10% chance the market will go down, 50% chance it will remain moderate, and 40% chance it will perform wellThe following table provides the percentage change in the in- vestment value under the three conditions: —_———__— Percent return on investment Alternative Down marker (%) Moderate marker {%) Up marke! (%) ——_—__——_ Utility.r +5 +7 +8 Aggressive growth —'10 +5 +30 Global +2 +7 +20 ——.—.———__— (a) Represent the problem as a decision tree. 0)) Which mutual fund should you select? ...
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decision analysis sorular - Suppose that you want to invest...

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