Prepare decision tree, The decision tree will illustrate

Prepare decision tree

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Reference no: EM132186960

Prepare a decision tree.

The decision tree will illustrate the best way to invest $10,000 for the next year. You don't have to do any calculations, but instead prepare the decision tree including the following items:

There are only two decision alternatives available to the investor: bonds and stocks.

Only two states of the investment climate can occur: no growth or rapid growth

There is a .65 probability of no growth and a .35 probability of rapid growth.

The payoffs are $500 for a bond investment in a no-growth state, and $100 for a bond investment in a rapid-growth state.

The payoffs are -$200 for a stock investment in a no-growth state, and $1100 for a stock investment in a rapid-growth state.

The expected monetary value for the bonds decision alternative is $360 ($500 X .65 + $100 X .35)

The expected monetary value for the stocks decision alternative is $255 (-$200 X .65 + $1100 X .35)

Reference no: EM132186960

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