Assume you have a sum of money available that you would like to invest in one of the three available investment plans: stocks, bonds, or money market. The conditional payoffs of each plan under two possible economic conditions are shown below. The probability of the occurrence of economic condition I is 0.28.
a.Compute the expected value of the three investment options. Which investment option would you select, based on the expected values?
b.Compute the expected value with perfect information (i.e., expected value under certainty).
c.Compute the expected value of perfect information (EVPI).

Question

Assume you have a sum of money available that you would like to invest in one of the three available investment plans: stocks, bonds, or money market. The conditional payoffs of each plan under two possible economic conditions are shown below. The probability of the occurrence of economic condition I is 0.28.  
a.Compute the expected value of the three investment options. Which investment option would you select, based on the expected values?
b.Compute the expected value with perfect information (i.e., expected value under certainty).
c.Compute the expected value of perfect information (EVPI).

Quizplus · Accepted Answer

The Answer of Assume you have a sum of money available that you would like to invest in one of the three available investment plans: stocks, bonds, or money market. The conditional payoffs of each plan under two possible economic conditions are shown below. The probability of the occurrence of economic condition I is 0.28.  
a.Compute the expected value of the three investment options. Which investment option would you select, based on the expected values?
b.Compute the expected value with perfect information (i.e., expected value under certainty).
c.Compute the expected value of perfect information (EVPI).

Assume You Have a Sum of Money Available That You