You have gotten your dream job, which comes with the benefit of a 401(k) plan. You are trying to figure out how to make your investments. The Presidential elections coming up have added to the uncertainty in the investment environment. You have done a fair bit of analysis and come up with the following payoff table, for the gain or loss on your investment of $5,000 after the next year.

Decisions		State of economy
		Weak Economy	Moderate Economy	Strong Economy
	Buy Bond Funds	$200	$200	$175
	Buy Stock Funds	-$1000	$300	$500

A. What are the states of nature in this situation?

B. What are the decisions?

C. Which of decisions or states of nature do you have control over?

D. Suppose you are a conservative decision-maker. What criterion would you use in that case to make your decision?

E. Use your criterion in d. to decide which action to take. Show your work to justify your answer.

F. Suppose you are an optimistic decision-maker. What criterion would you use in that case to make your decision?

G. Use your criterion in f. to decide which action to take. Show your work to justify your answer.

H. Draw the decision tree corresponding to the payout table (pay attention to the correct order and node symbols). Assume that the chance of a weak economy is 0.15 and of a moderate economy is 0.7.

I. Calculate the EV for the possible decisions.

J. Which decision would you make if you were to use a probability method? Why?

K. What is the expected value WITHOUT perfect information?

L. What is the expected value WITH perfect information?

M. What is the expected value OF perfect information (EVPI)?