Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\quad $$\text { Market Condition }$
$\begin{array}{|c|c|c|c|}
\hline \text { Investment } & \text { Bull } & \text { Neutral } & \text { Bear } \
\hline \text { T-Bills } & 3 & 3 & 3 \
\hline \text { Stocks } & 21 & 11 & -30 \
\hline \text { Bonds } & 15 & 4 & -3 \
\hline \text { Mixture } & 13 & 6 & -10 \
\hline
\end{array}$

If Ray uses the Hurwicz criterion with alpha = 0.5, the appropriate choice is ______.
A)T-Bills
B)Stocks
C)Bonds
D)Mixture
E)None

Question

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions.   $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\quad $$\text { Market Condition }$
$\begin{array}{|c|c|c|c|}
\hline \text { Investment } & \text { Bull } & \text { Neutral } & \text { Bear } \
\hline \text { T-Bills } & 3 & 3 & 3 \
\hline \text { Stocks } & 21 & 11 & -30 \
\hline \text { Bonds } & 15 & 4 & -3 \
\hline \text { Mixture } & 13 & 6 & -10 \
\hline
\end{array}$

If Ray uses the Hurwicz criterion with alpha = 0.5, the appropriate choice is ______.
A)T-Bills
B)Stocks
C)Bonds
D)Mixture
E)None

Quizplus · Accepted Answer

The Hurwicz criterion is a decision-making rule that is a compromise between the maximax and maximin criteria. It uses a coefficient of optimism (alpha) to weigh the best and worst outcomes. For each investment, calculate: Hurwicz value = alpha * (best payoff) + (1-alpha) * (worst payoff). For Bonds: 0.5 * 15 + 0.5 * (-3) = 6. For T-Bills: 0.5 * 3 + 0.5 * 3 = 3. For Stocks: 0.5 * 21 + 0.5 * (-30) = -4.5. For Mixture: 0.5 * 13 + 0.5 * (-10) = 1.5. Bonds have the highest Hurwicz value of 6.

Ray Crofford Is Evaluating Investment Alternatives to Invest $100,000 Which \quad

Ray Crofford Is Evaluating Investment Alternatives to Invest $100,000 Which $\quad$