Question 3 (30 points) The interest rate from the saving account seems to be fixed for 2 years, but the rate of return from the investment on the internet store is rather uncertain. If the company is successful the expected net return at the end of the second year is most likely to be $ 135,000 (exeluding the original investment), but this amount could be between $90,000 and $160,000. Otherwise, the half of the investment will be lost. Whether the business will be successful or not is even more imcertain. After a careful study on the business plan of the internet-based store, you become to believe the probability of success is between 0.3 and 0.6. When you deposit the money into the saving account, the annual interest rate will be fixed at 12% for 2 years. 1 To invest in an internet-based retailer, To deposit into a savings account. The interest rate from the saving account seems to be fixed for 2 years, but the rate of return from the investment on the internet store is rather uncertain. If the company is successful the expected net return at the end of the second year is most likely to be $135,000 (ex- chuding the original investment), but this amount could be between 890,000 and $160,000 Otherwise, the half of the investment will be lost. Whether the business will be successful or not is even more uncertain. After a careful study on the business plan of the internet-based store, you become to believe the probability of success is between 0.3 and 0.6. When you deposit the money into the saving account, the annual interest rate will be fixed at 12% for 2 years. a.(20 points) Develop a decision tree for the decision making problem described above b.(10 points) Assuming the return of the investment on the internet-base store will be $135,000 in case of success and the probability that the company will be successful in 0:4, which of the two alternatives would be preferred in terms of maximization of the return? Question 3 (30 points) The interest rate from the saving account seems to be fixed for 2 years, but the rate of return from the investment on the internet store is rather uncertain. If the company is successful the expected net return at the end of the second year is most likely to be $ 135,000 (exeluding the original investment), but this amount could be between $90,000 and $160,000. Otherwise, the half of the investment will be lost. Whether the business will be successful or not is even more imcertain. After a careful study on the business plan of the internet-based store, you become to believe the probability of success is between 0.3 and 0.6. When you deposit the money into the saving account, the annual interest rate will be fixed at 12% for 2 years. 1 To invest in an internet-based retailer, To deposit into a savings account. The interest rate from the saving account seems to be fixed for 2 years, but the rate of return from the investment on the internet store is rather uncertain. If the company is successful the expected net return at the end of the second year is most likely to be $135,000 (ex- chuding the original investment), but this amount could be between 890,000 and $160,000 Otherwise, the half of the investment will be lost. Whether the business will be successful or not is even more uncertain. After a careful study on the business plan of the internet-based store, you become to believe the probability of success is between 0.3 and 0.6. When you deposit the money into the saving account, the annual interest rate will be fixed at 12% for 2 years. a.(20 points) Develop a decision tree for the decision making problem described above b.(10 points) Assuming the return of the investment on the internet-base store will be $135,000 in case of success and the probability that the company will be successful in 0:4, which of the two alternatives would be preferred in terms of maximization of the return
