Assume you have a sum of money available that you would like to invest in one of the two available investment plans: stocks or bonds.The conditional payoffs of each plan under two possible economic conditions are as follows.

a.If the probability of Economic Condition I occurring is 0.8,where should you invest your money? Use the expected monetary value criterion and show your complete work.
b.Compute the expected value with perfect information about the economic conditions (expected value under certainty).
c.Determine expected value of perfect information (EVPI).

Question

Assume you have a sum of money available that you would like to invest in one of the two available investment plans: stocks or bonds.The conditional payoffs of each plan under two possible economic conditions are as follows.
  
a.If the probability of Economic Condition I occurring is 0.8,where should you invest your money? Use the expected monetary value criterion and show your complete work.
b.Compute the expected value with perfect information about the economic conditions (expected value under certainty).
c.Determine expected value of perfect information (EVPI).

Quizplus · Accepted Answer

The Answer of Assume you have a sum of money available that you would like to invest in one of the two available investment plans: stocks or bonds.The conditional payoffs of each plan under two possible economic conditions are as follows.
  
a.If the probability of Economic Condition I occurring is 0.8,where should you invest your money? Use the expected monetary value criterion and show your complete work.
b.Compute the expected value with perfect information about the economic conditions (expected value under certainty).
c.Determine expected value of perfect information (EVPI).

Assume You Have a Sum of Money Available That You