Suppose that the price of the common shares is negotiable but that the price of the mutual fund investment is fixed at $15,000. What is the most the Mr. Smart will pay for the common stock based on the decision tree and probabilities in the below Figure.

use Excels Goal Seek function to get the numerical solution.

Action State Probability Net Payoff Good 0.50 $8,000 Buy common shares Bad 0.50 $1,000 Good 0.50 $5,000 Buy mutual fund Bad 0.50 $2,000