Calculate emvs and draw a decision tree

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Reference no: EM132287693

A brokerage firm is considering investment options for its clients. If the market is good the clients could get a net profit of $120,000 for Fund A, $100,000 for Fund B, and $80,000 for Fund C. If the market is fair, they could get a net profit of $20,000 for Fund A, $40,000 for Fund B, and $30,000 for Fund C. If the market is poor, clients would lose $30,000 for Fund A, $50,000 for Fund B, and $15,000 for Fund C. They must Fund one to invest in for their clients. An economist group offers to do a market study for $2,000. They know the following probabilities:

P(good market Fund A | favorable study) = 0.6

P(fair market Fund A | favorable study) = 0.3

P(poor market Fund A | favorable study) = 0.1

P(good market Fund A | unfavorable study) = 0.2

P(fair market Fund A | unfavorable study) = 0.1

P(poor market Fund A | unfavorable study) = 0.7

P(good market Fund B | favorable study) = 0.8

P(fair market Fund B | favorable study) = 0.1

P(poor market Fund B | favorable study) = 0.1

P(good market Fund B | unfavorable study) = 0.2

P(fair market Fund B | unfavorable study) = 0.3

P(poor market Fund B | unfavorable study) = 0.5

P(good market Fund C | favorable study) = 0.6

P(fair market Fund C | favorable study) = 0.2

P(poor market Fund C | favorable study) = 0.2

P(good market Fund C | unfavorable study) = 0.2

P(fair market Fund C | unfavorable study) = 0.2

P(poor market Fund C | unfavorable study) = 0.6

P (favorable study) = 0.6

P (good market) = 0.4

P (fair market) = 0.4

P (poor market) = 0.2

Calculate EMVs and draw a decision tree.

Write out the recommended strategy.

Calculate EVSI for how much the brokerage firm would be willing to pay for the research study.

Reference no: EM132287693

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