Question 1: Mickey Lawson is considering investing some money that he inherited. The following payoff table gives profits that would be realized during the next year for each of 3 investment alternatives Mickey is considering:

a) What decision would maximize expected profits?

b) What is the maximum amount that should be paid for a perfect forecast of the economy?

Decision Alternative	Good Economy	Poor Economy
Stock Market	80,000	-20,000
Bonds	30,000	20,000
CDs	23,000	23,000
Probability	.5	.5

Question 2: A financial advisor has recommended two possible mutual funds for investment: Fund A and Fund B. The return that will be achieved by each of these depends on whether the economy is good, fair, or poor. A payoff table has been constructed to illustrate this situation:

a) Draw a decision tree to represent this situation

c)Suppose there is a question about the return of Fund A in a good economy. It could be a higher or lower than $10,000. What value for this would cause a person to be indifferent between Fund A and Fund B?

Investment	Good Economy	Fair Economy	Poor Economy
Fund A	$10,000	$2,000	-$5,000
Fund B	$6,000	$4,000	0
Probability	.2	.3	.5