Maximizes paul expected money value

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Reference no: EM131905814

Paul wants to choose one of the two investment opportunities over three possible scenarios. Investment 1 will yield a return of $10,000 in Scenario 1, $2,000 in Scenario 2, and a negative return of -$5,000 in Scenario 3. Investment 2 will yield a return of $6,000 in Scenario 1, $4,000 in Scenario 2, and zero in Scenario 3. The probability for Scenario 1 is 0.2, for Scenario 2 is 0.3, and for Scenario 3 is 0.5.

Part 1) If you were to choose the investment that maximizes Paul's Expected Money Value (EMV), then you should choose __________.

A. Investment 1

B. Investment 2

C. Indifferent

Part 2) If Paul is uncertain about the return for Investment 1 in Scenario 1, then this return has to be ______________ dollars in order to make Paul indifferent between these two investments (i.e. the two investments would have the same EMV.) (Please only enter an integer and include no units.)

Reference no: EM131905814

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