Question

Investment advisors estimated the stock market returns for four market segments: computers, financial, manufacturing, and pharmaceuticals. Annual return projections vary depending on whether the general economic conditions are improving, stable, or declining. The anticipated annual return percentages for each market segment under each economic condition are as follows: Economic Condition Market Segment Improving Stable Declining Computers 10 2 -4 Financial 8 5 -3 Manufacturing 8 4 -2 Pharmaceuticals 6 5 -1 (a) Assume that an individual investor wants to select one market segment for a new investment. A forecast shows improving to declining economic conditions with the following probabilities: improving 0.6, stable 0.2, and declining 0.2. What is the preferred market segment for the investor? Select your answer - What is the expected return percentage? Round your answer in one decimal place. Expected Return = % (b) At a later date, a revised forecast shows a potential for an improvement in economic conditions. New probabilities are as follows: improving 0.4, stable 0.1, and declining 0.5. What is the preferred market segment for the investor based on these new probabilities? - Select your answer - What is the expected return percentage? Round your answer in one decimal place. Expected Return = %

Answer 1

given, mortet segment 1) Computen economic condining o caning, stable Imponugin) 2-11 -oor 0.2 06 Robabierty, expeckd retum, a PRI + P₂ R₂ + P₃ R3 (-4) (0-2) 2x0.2+ loxo.lt 6 + 0.4 -0.8 2 5.64 2 2 financial : RI 51 - 31. Rehims. 0:2 0.2 0.6 Probabilities expected rehim 880.6 +5x0.2+ (G)(0.2) 4.8 +1 -0.6 15.21) 3 manafichering Rehms Probabiliter 0.6 0.2 0-2 expected rehim (-3)(02 2 8x0.6+ 4x0.2+ 4.8t 08-0.4 5.2.11

R. 2 Rz Pharmaceuticay 67 0.2 Bobabilhi 6x0.67 5x0.2 + CD (0-2) expected rehm- 3.67 -0.2 ར au the the market 4.4.1. market segments computer preferred segment for investor greeds 5.61 Rehm RI -4.1. De caure Computers 10.1 2.1. 0.5 Revised probabilities 0.4 expected rehm = 10x8 4 + 2x0:1+(-7)(05) 4 + 0.2-2 N 12.2.1.1 RI R2 By finencial 0.4 0.1 0-5 Revised probability expected whom 8x0.4 + 5x011 + (2) (05) 3.2 +0.5-1.5 9.21

manufchring, Ri 4. -2.1. 0.5 0.4 Revised Pobabiliha expected renum = 8X0.4 +9x0.1 + (-2) (05) 3.2 +0.4-1 z 2.6.1. RI R2 R3 Pharmaceukcay 6/ -14 Revised probability 0.4. expected rehom 680.4+ 5xor * ED(05) 2 2.4 +0.5 -0.5 2.41 of all the manufacturing market segment, preferred market segment using is the Revised probabilinen, Becaur yreldy 2.611