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Desmond Taylor is considering investing some money that he inherited. The following payoff table gives the profits that would be realized during the next year
Desmond Taylor is considering investing some money that he inherited. The following payoff table gives the profits that would be realized during the next year for each of three investment alternatives being considered:
STATE OF Nature | ||||
DECISION ALTERNATIVE | GOOD ECONOMY | POOR ECONOMY | ||
Stock Market | $110,000 | $-50,000 | ||
Bonds | $40,000 | $30,000 | ||
CDs | $43,000 | $43,000 | ||
Probability | 0.55 | 0.45 |
Suppose that Desmond wants to make an investment decision between bonds and stocks only. Conduct sensitivity analysis to help this person. Draw an appropriate picture to support your responses.
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