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An investor is considering how to invest her money. She has two options either a domestic mutual fund that only invests in the Retail sector
An investor is considering how to invest her money. She has two options either a domestic mutual fund that only invests in the Retail sector or an international aggressive mutual fund that invests in promising startups in the Automobiles & Components sector. The payoff (prot) after one year for these investments depends on the state of economy. The investor thinks that there is 0.3 probability that economy will improve and 0.2 probability that economy will decline. The estimated payoffs are shown in the table below. State of the Economy Economy Declines Economy Improves (0. SD) (0 20) International MF (a) Fill in the probability tree values: probability 1: probability 2: probability 3: probability 4: payoff 1: payoff 2: payoff 3: payoff 4: Round your answers in part (b) to the nearest dollar. (b) Calculate the EMV values: EMV(Domestic Mutual Fund) = EMV(International Mutual Fund) = (c) Where should the money be invested? O International Mutual Fund O Domestic Mutual Fund
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