Reference no: EM13333842
1. Ziang Zameen has always been proud of his personal investment strategies and has done very well on the past several years. He invests primarily on the stock market. Over the past several months, however, Allen has become very concerned about the stock market as a good investment. In some cases it would have been better for Ziang to have his money in a bank than in the market. During the next yr, Ziang must decide whether to invest in stock market of in a certificate of deposit (CD) at 9% interest rate. If the market is good, Ziang believes that he could get 14% return on his money. With a fair market, he expects to get an 8% return. If the market is poor, he will most likely get no return at all (0% return). Ziang estimates that the probability of a good market is 0.4, fair market is 0.4, and poor market is 0.2, and he wishes to maximize his long-run average return.
A. Develop a decision table for this problem.
B. What is the best decision?
2. you helped Ziang Zameen determine the best investment strategy. Now, Zameen is thinking of paying for a stock market newsletter. A friend of Zameen said that these types of letters could predict very accurately whether the market would be good, fair or poor. Then, based on these predictions, Ziang could make better investment decisions.
A. What is the most that Ziang would be willing to pay for a newsletter?
B. Ziang now believes that a good market will give a return of only 11% instead of 14%. Will this information change the amount that Ziang would be willing to pay for a newsletter? If your answer is yes, determine the most that Ziang would be willing to pay, given this new information.
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