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Maria and Tracey became good friends while working at the same entity. Two years ago, they both decided to increase their savings so that they could eventually purchase homes. Each began by putting a portion of each month's salary into a savings account. At the end ofthe first year, they had each accumulated S4000. Because their savings accounts paid a very small interest rate, they decided to invest the savings to earn a higher rate of return. Maria and Tracey both hoped to save enough money to buy homes within five yea rs. Maria decided to take an investment course offered through the entity. The course taught her about different types of investments and strategies for investing. She then purchased and read an investment book to learn more. Maria learned that some investments are riskier than others are, and that investors must balance risk against desired return. Higher risk leads to higher returns on average, but higher risk could also lead to low returns or even loss. She also learned that investment advisers recommend diversifying risky investments. One way to diversify is to invest in mutual funds, which invest in many different organizations. Maria decided that she was willing to assume some risk, but was not comfortable with a high level. She decided to invest her $4000 in a stock market mutual fund. She read client reports to learn about different mutual funds, and selected a fund that invests conservatively in fairly stable companies. However, the stock market did not do well in the first year. The value of her mutual fund at the end of a year was $4050. Tracey talked with her boyfriend and other friends about how they invest. Her boyfriend's cousin recommended investing in a start-up company that sells video games. He told her that the games were very popular with teenagers and that the company would probably be acquired, resulting in big gains for investors. This opportunity sounded good to Tracey, so she decided to invest her entire $4000 in the com pany's shares. After 10 months, she was excited to learn that the company was being acquired. She received shares in the acquiring company in exchange for her original shares. At the end of the year, the market value of her shares was $8200. Required 1. Evaluate the quality of the investment decisions made by Maria and Tracey. 2. List the information used by Maria in making her investment decision. 3. List the information used by Tracey in making her investment decision. 4. Did Maria appear to use high-quality information? Explain. 5. Did Tracey appear to use high-quality information? Explain. 6. Describe Maria's decision-ma king process. What did she do to explore her options? Did she appear to be biased? What were her priorities? How did she reach a conclusion? 7. Describe Tracey's decision-making process. What did she do to explore her options? Did she appear to be biased? What were her priorities? How did she reach a conclusion? 8. Did Maria appear to use a high-quality decision-making process? Explain. 9. Did Tracey appear to use a high-quality decision-making process? Explain. 10. Given your analyses of the information and decision-making processes used by Maria and Tracey, which investor made a higher-quality decision? Explain
