A young couple has some money to invest in either savings bonds or a real estate deal. The expected payoff for each investment, given good and bad economic conditions, is shown in the following table:

a). The probability of good economic conditions is 0.7, and the probability of bad economic conditions is 0.3. Compute the EMV for each investment. Which investment should the couple choose? Why? [6 pts]

b). What is the expected value of perfect information (EVPI) for the couple's decision? [6 pts]

c). Examine the probability of good economic conditions. For what value of this probability would the couple be indifferent between the two investments (Savings bonds and Real estate)? (Hint: Sensitivity analysis!)[6 pts]

Economic Conditions Good 0.7 $ 4,000 10,000 Bad 0.3 $ 4,000 -8,000 Investment Savings bonds Real estate