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. An investor is considering three alternatives-a certificate of deposit, a low risk stock fund, and a high risk stock fund- for a $20,000 investment.

.   An investor is considering three alternatives-a certificate of deposit, a low risk stock fund, and a high risk stock fund- for a $20,000 investment. The investor considers three possible states of nature

          S1: Strong stock market, S2: Moderate stock market, S3: Weak stock market

The payoff table (in dollars) is as follows:

Action
                              States of nature
Possible investment alternative
S1
S2
S3
Certificate of deposit
1,200
1,200
1,200
Low- risk stock
4,300
1,200
-600
High-risk stock fund
6,600
800
-1500

 

      (i) Which action is selected by the investor if he is a risk seeker?                    [2Marks]

       (ii)     Which action is selected by the investor if he is a risk averter?            [2Marks]

       (iii) Which criteria is selected by the minim ax regret criterion?                     [3Marks]

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