Decision Analysis

1. An investor has a choice between four investments. The profitability of the investments depends upon the market. The payoff table is given below for different market conditions.

	States of Nature
Investments	Market Increases	Market Stays the Same	Market Decreases
A	100,000	50,000	-40,000
B	70,000	30,000	-10,000
C	40,000	15,000	10,000
D	20,000	20,000	20,000

A market economist has stated that there is a 25% chance that the market will stay the same, a 35% chance that the market will decrease, and a 40% chance that the market will increase.

a. What is the expected value for each investment?

b. Which investment is best?