4. Anaya is a rational, risk averse investor with $5,000 to invest for one year. She has decided to invest this amount in a high-technology firm and has narrowed the choice down to Abole Inc. and Zinfoni Corp. Abole has great potential but no established products while Zinfoni is well established and fairly stable performance. The payoffs (net of the amount invested) for each firm depend on the performance as follows: Return Next Year's Performance High Low Abole $1,936 Zinfoni $576 $324 $0 For each firm, Anaya assesses prior probabilities of 0.5 for each of the high and low performance states of nature. Her utility for the investment return is equal to the square root of the amount of net payoff received. Required: a. On the basis of her prior probabilities, should Anaya invest in Abole Inc or Zinfoni Corp? Show calculations. b. Zinfoni just released its annual report. Anaya analyzes the report and her analysis indicates good news (GN). The annual report for Abole is not due for a while and nothing has changed to cause Anaya to update her probabilities. Anaya also has some expectations about how good and bad news in financial statements translates into future performance as follows: Next Year's Performance High Low Financial Statement Information Good News Bad News 0.6 0.4 0.5 0.5 c. Suppose we could improve the financial reporting to be more transparent and better at representing the underlying economics. In this improved environment, Anayas expectations about how good and bad news would translate into future performance as follows: Next Year's Performance High Low Financial Statement Information Good News Bad News 0.8 0.2 0.2 0.8 Zinfoni is still the only company that has reported, and the prior probabilities are the same (50/50). How would this new accounting system affect Anaya's decision to invest? Show calculations