Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather.His investment advisor has identified two alternatives
And constructed the following tables which show (1)expected profits (in $10,000's)for
Various market conditions and their probabilities,and (2)the advisor's track record on
Predicting Bull and Bear markets:
If the advisor predicts a Bull market the EMV of the Bonds alternative,using revised probabilities,is ___.
A)$85,240
B)$25,710
C)$108,450
D)$75,480

Question

Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather.His investment advisor has identified two alternatives
And constructed the following tables which show (1)expected profits (in $10,000's)for
Various market conditions and their probabilities,and (2)the advisor's track record on
Predicting Bull and Bear markets:
 If the advisor predicts a Bull market the EMV of the Bonds alternative,using revised probabilities,is ___.
A)$85,240 
B)$25,710 
C)$108,450 
D)$75,480

Quizplus · Accepted Answer

To find the expected value of the Bonds alternative in a Bull market, we need to use the revised probabilities provided in the table. These revised probabilities are 0.6 for a Bull market and 0.4 for a Bear market.

Using these probabilities, we can calculate the EMV as follows:

EMV = (0.6 x $95,000) + (0.4 x $70,000)
EMV = $57,000 + $28,000
EMV = $85,000

Therefore, the answer is (C) $108,450, since Bonds has the highest EMV of the two alternatives.

It's important to note that while Bonds has the highest EMV, the best choice ultimately depends on Ray's personal goals, risk tolerance, and other factors.

Ray Crofford Is Evaluating Investment Alternatives for the $100,000 Which