3-43 A financial advisor has recommended two possible mutual funds for investment: Fund A and Fund B. The return that will be achieved by each of these depends on whether the economy is good, fair, or poor. A payoff table has been constructed to illustrate this situation:

STATE OF NATURE

INVESTMENT GOOD ECONOMY FAIR ECONOMY POOR ECONOMY

Fund A $10,000 $2,000 -$5,000

Fund B $6,000 $4,000 0

Probability 0.2 0.3 0.5

Draw the decision tree to represent this situation.

Suppose there is a question about the return of Fund A in a good economy. It could be higher or lower than $10,000. What value for this would cause a person to be indifferent between Fund A and Fund B (i.e., the EMVs would be the same)?