PROBLEMS

l. Mr. Merrill Lynch is planning on investing in stocks. He is considering three different wpes stocks, ABC, DEF, and XYZ to choose from under two possible states, good and bad. As a result oftvorable stock mar ket conditions, there is a 0.75 probability ofgood and 0.25 probability ofbad state. The table below indicates the profits and losses ofinvesting in the following three stocks under the given statesgood and bad.

ABC $75,000 $45,000

DEF $90,000 -$30,000

XYZ S35,ooo $15,000

Using Excel, set up a spreadsheet to find the best decision using:

a. Mximax

b. Maximin

c. Equal likelihood

d. Expected value