Draw the decision tree, Draw the Decision Tree. Find the EV

Draw the decision tree

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Reference no: EM132246108

Consider the following investment decision. One may invest $10,000 in a CD that earns 5% interest or one may invest in a mutual fund that has a 10% chance of going up 20%, a 70% chance of going up 5%, 20% chance of going down 10%. Use net profit as your attribute of interest.

a. Draw the Decision Tree

b. Find the EV and SD for Stock Investment option (analytically).

c. Write and submit a Monte Carlo simulation in Excel that generates 20 years worth of returns on the Stock Investment option. Hint: create a row to calculate/simulate each year, use random number generation and run multiple trials.

d. Find the EV and SD from the MC experiment

e. How does it compare to the analytical result? Why is it different?

Reference no: EM132246108

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