Reference no: EM133098912

A stock market advisory service offers three investments portfolios for one of its customers.  All portfolios have the same investment cost.  Portfolio D contains speculative stocks, which aim for capital gain through price appreciation. Portfolio E is made up of stocks of stable companies that pay good dividends overt the long run.  Portfolio F comprises stocks with a moderate potential for growth and a moderate yield of dividends.

The customer has enough money to invest in only one of these three portfolios for a period of one year.  The net return on investments will depend on whether the economy during the period will be in a stage of inflation, recession, or depression.  The net potential gains or losses (in thousands) are calculated as follows: 

STATES OF NATURE

		Recession	Inflation	Depression
ALTERNATIVES	Portfolio D	$ 45	$ 81	$ 0
	Portfolio E	$ 50	$ 85	$ - 10
	Portfolio F	$ 55	$ 80	$ - 5

1. DMUU: What would be the decision according to (1) Maximax (optimism); (2) Maximin (pessimism);  (3) Realism where α = .8   (4) Equal Likelihood; and (5) Minimizing Regret?  Be sure to show work, indicate the recommended alternative each time, provide a summary table (see below), and support your final statement with a reason.

ESHOW ALL WORK AND Expected Answer Format:

DMUU:         Letter Answer & Value           Reason

Perfect Optimism:
Perfect Pessimism
Optimism at α=___:
Equal Likelihood:
Minimizing Regret:

Choose One : Overall DMUU: ________________ (Give Reasons!)