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1-A Managerial problem Decision Under Uncertainty (10 points] An investor is considering five possible investment strategies. The investor cares only about the expected payoff and possibly the variance of each strategy. The following table shows the payoffs under bad luck and good luck and the associated probabilities. Good Luck Payoff 9 Strategy A B C Bad Luck Payoff 4 5 2 Probability of Good Luck 0.4 Probability of Bad Luck 0.6 0.3 0.5 0.8 0.7 5 12 11 0.7 0.5 D 0.2 4 3 E 10 0.3 a. Using a spreadsheet, determine the expected value and variance for each strategy. [4 points] b. Which strategy would be chosen by a risk-neutral investor? A risk-preferring investor? [4 points] c. If we know only that the investor is risk-averse, can we rule out any strategies? [2 points]Step by Step Solution
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