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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:

  1. Develop a decision table for this decision.
  2. What is the maximax decision?
  3. What is the maximin decision?
  4. What is the equally likely decision?
  5. What is the criterion of realism decision? Use an value of 0.5.
  6. Develop an opportunity loss table.
  7. What is the minimax regret decision?
  8. What will be the EMP?
  9. What will be the EVPI?
  10. What will be EOL?
  11. Calculate the sensitivity analysis?

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