2-1. Desmond Taylor is considering investing some money that he inherited. The following payoff table gives the profits that would be realized during the next year for each of three investment alternatives being considered:

		STATE OF Nature
DECISION ALTERNATIVE		GOOD ECONOMY	POOR ECONOMY
Stock Market		$110,000	-50,000
Bonds		40,000	30,000
CDs		43,000	43,000
Probability		0.55	0.45

REQUIRED: (a). What decision would maximize expected profit? (b). What is the maximum amount that should be paid for a perfect forecast of the economy?

2-2. Suppose that Desmond wants to make an investment decision between bonds and stocks only. Conduct sensitivity analysis to help this person. Draw an appropriate picture to support your responses.