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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
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:
INVESTMENT | State of Nature | ||
| GOOD Economy | FAIR Economy | POOR Economy |
Fund A | Rs. 1,00,00,000 | Rs. 20,00,000 | Rs. 50,00,000 |
Fund B | Rs. 60,00,000 | Rs. 40,00,000 | 0 |
Probability | 0.2 | 0.3 | 0.5 |
Requirements:
- Develop a decision table for this decision.
- What is the maximax decision?
- What is the maximin decision?
- What is the equally likely decision?
- What is the criterion of realism decision? Use an value of 0.5.
- Develop an opportunity loss table.
- What is the minimax regret decision?
- What will be the EMP?
- What will be the EVPI?
- What will be EOL?
- Calculate the sensitivity analysis?
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