Extra Problem 8 - Value of Perfect Information - Solution Key

Extra Problem 8 - Value of Perfect Information - Solution Key

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
EMSE 269 - Elements of Problem Solving and Decision Making Instructor: Dr. J. R. van Dorp 1 EXTRA PROBLEM 8 - VALUE OF PERFECT INFORMATION Mister Smith is trying to decide between investing $10,000 windfall into a savings account at a 10% yearly interest rate or a new stock. The return on the new stock is linked in part to the overall stock market behavior as exhibited by the DOW JONES INDEX. If the on the average during the DOW JONES INDEX increases year then there is a probability of that the stock value will increase. If the 0.8 DOW JONES INDEX decreases on the average during the year, then there is a probability that the stock will increase. The probability that the 0.3 DOW JONES INDEX increases 0.55 on the average during the coming year is . The net payoff in one year on the investment of $10,000 for these events is as follows STOCK VALUE Increase Decrease DOW JONES INDEX Increases $8,000 -$5,000 DOW JONES INDEX Decreases $2,000 -$10,000 That is, if the DOW JONES INDEX increases on the average during the year and
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/04/2011 for the course BUSINESS 500 taught by Professor John during the Spring '11 term at Kansas.

Page1 / 7

Extra Problem 8 - Value of Perfect Information - Solution Key

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online