Determine which of the two mutual funds is better

Assignment Help Basic Statistics

Reference no: EM13118087

Financial advisor has recommended two possible mutual funds for investment: Fund A and Fund B. The return that will be achieved by each of these depends on whether the economy is good, fair, or poor. A payoff table has been constructed to illustrate this situation:

INVESTMENT STATE OF NATURE
GOOD
ECONOMY FAIR
ECONOMY POOR
ECONOMY
Fund A $10,000 $2,000 -$5,000
Fund B $6,000 $4,000 0
Probability 0.2 0.3 0.5

(a) Draw the decision tree to represent this situation.

(b) Perform the necessary calculations to determine which of the two mutual funds is better. Which one should you choose to maximize the expected value?

(c) Suppose there is question about the return of Fund A in a good economy. It could be higher or lower than $10,000. What value for this would cause a person to be indifferent between Fund A and Fund B (i.e., the EMVs would be the same)?

Reference no: EM13118087

Questions Cloud

Find what proportion of the population would score higher : The distribution of IQ scores is normal, what proportion of the population would score higher than Bob? Lower than Bob?

Which of the following cannot undergo microevolution : Which of the following CANNOT undergo microevolution?

Calculate the equilibrium constant for the given reaction : "Given the following standard reduction potentials, E°redAl3+/Al = -1.66 V. E°redCr3+/Cr = -0.74 V.

Find discrete probabilities-expected value of a distribution : Discrete Probabilities - Expected Value of a Distribution. What is the expected value of a distribution and is it a reasonable number to use to describe a population with?

Determine which of the two mutual funds is better : Perform the necessary calculations to determine which of the two mutual funds is better. Which one should you choose to maximize the expected value?

How many liters of chlorine gas are generated : In the electrolysis of aqueous NaCl, how many liters of Cl2(g) (at STP) are generated by a current of 7.50 A for a period of 100. min.

Find probability of having a disease when testing positive : Probability of Having a Disease when Testing Positive. Suppose that 1% of all people have a particular disease. A test for the disease is 99% accurate. This means that a person who tests positive for the disease has a 99% chance of actually having..

Explain how long does the package take to reach the ground : A hot-air balloon is ascending at the rate of 12 m/s and is 84 m above the ground when a package is dropped over the side. Explain how long does the package take to reach the ground?

Probability that at most three seeds will germinate : If we believe the manufacturer's assertion, what is the probability that at most 3 of the 6 seeds that were planted will germinate?

User Account

All Pages