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A trust officer for a major banking institution is planning the investment of a $ 1 million family trust fund for the coming year. The
A trust officer for a major banking institution is planning
the investment of a $ million family trust fund for the
coming year. The trust officer has identified a portfolio of
stocks and another group of bonds that might be selected
for investment. The family trust can be invested in stocks
or bonds exclusively, or a mix of the two. This trust officer
prefers to divide the funds in increments of ; that is the
family trust is split into the following alternatives:
a stocks and bonds
d stocks
and bonds
b stocks and bonds
e stocks and
bonds
c stocks and bonds
The trust officer has evaluated the relationship between the
yields on the different investments and the general
economic conditions. Her judgment is as follows:
If the next year is characterized by solid growth in the
economy, bonds will yield and stocks ;
If the next year is characterized by inflation, bonds will
yield and stocks
If the next year is characterized by stagnation, bonds
will yield and stocks
A Constructs the payoff and the opportunity loss table.
B Determine the best decision using the maximax,
maximin, Laplace, Hurwicz and minimax
regret criteria.
C Suppose that a leading economic forecasting firm
projects solid growth
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