One of Larry's investments is going to mature, and he wants to determine how to invest the proceeds of $30,000. Larry is considering three
new investments: a stock mutual fund (SMF), a one-year certificate of deposite (CD), or a nano-technology stock called (NNS). The CD is guaranteed to pay an 8% return.
Larry estimates the return on the stock mutual fund (SMF) as 16%, 7%, or -9%, and the return on the nano-technology stock (NNS) as 30%, 5%, or -25%, depending
on whether market conditions are good, average, or poor, respectively. Larry also has been collecting financial market information daily and estimates the
probabilities of a good, average, and poor market to be 0.25, 0.45, and 0.30, respectively.
(A-1) Construct a payoff matrix (in dollars) for this problem.
(A-2) What decision should be made according to Minimax Regret Approach?
(A-3) What decision should be made according to Expected Value Approach?
(A-4) What is the EVPI?
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