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Allen Young has always been proud of his personal investment strategies and has done very well over the last several years.

He invests primarily in the stock

market. Over the last several months, however, Allen has become very concerned about the stock market as a good investment. In some cases, it would have been better for Allen to have his money in a bank than in stock market. During the next six months, Allen must decide whether to invest $1,000 in the stock market or in a six-month certificate of deposit (CD) at an interest rate of 10%. If the market is good, Allen believes that he could get a 14% return on his money. With a fair market, he expects to get an 8% return. If the market is bad, he will most likely get no return at all in other words; the return would be 0%. Allen estimates that the probability of a good market is 0.4, the probability of a fair market is 0.4, and the probability of a bad market is 0.2, and he wishes to maximize his long-run average return.

(a).

What type of decision is Felix facing?

(b).

Develop a decision table for this decision.

(C).

What is the maximax decision?

(d).

What is the maximin decision?

(e).

What is the equally likely decision?

(f).

What is the criterion of realism decision? Use an a value of 8.

(g).

Develop an opportunity loss table and best strategy.

(h).

What is the minimax decision?

(l). What is the expected value of perfect information?