Homework - Decision Trees MUveInUp Products and Services, a successful start-up, has amassed a significant amount of cash on its balance sheet. Forecasts suggest that of the total cash, $500,000 is not needed in the next year. As such, the CEO wants you to advise her on whether the cash should remain in the bank account it's currently in or be invested in the stock market. You've gathered information about these options: (a) Keep the $500,000 in bank account that does not earn interest; engage the services of a broker who will invest in (b) a high-risk, high-return portfolio or (c) a low-risk, low-return portfolio. The broker provided this information using the portfolios' historical performance. Brokerage fees Investment balance at end of 12 months if: market goes up, market stays the same, market goes down, 50% chance 30% chance 20% chance $1,700,000 $400,000 $(800,000) $200,000 High-risk, high- return portfolio Low-risk, low- return portfolio $1,200,000 $300,000 $100,000 $100,000 Draw the decision tree to support the choice of which portfolio to invest in. Homework - Decision Trees MUveInUp Products and Services, a successful start-up, has amassed a significant amount of cash on its balance sheet. Forecasts suggest that of the total cash, $500,000 is not needed in the next year. As such, the CEO wants you to advise her on whether the cash should remain in the bank account it's currently in or be invested in the stock market. You've gathered information about these options: (a) Keep the $500,000 in bank account that does not earn interest; engage the services of a broker who will invest in (b) a high-risk, high-return portfolio or (c) a low-risk, low-return portfolio. The broker provided this information using the portfolios' historical performance. Brokerage fees Investment balance at end of 12 months if: market goes up, market stays the same, market goes down, 50% chance 30% chance 20% chance $1,700,000 $400,000 $(800,000) $200,000 High-risk, high- return portfolio Low-risk, low- return portfolio $1,200,000 $300,000 $100,000 $100,000 Draw the decision tree to support the choice of which portfolio to invest in
