Question

Question 2 You have won money playing the lottery. You decided to invest the mo to pay for your future studies. The payoff table below depicts the prof that would be realised during the next year of three investment alternatives you are considering: ney State of Nature Alternative Probability Stock market Bonds CDs Good economy 0,50 80 000 30 000 23 000 Poor economy 0,50 20 000 20 000 23 000 You are required to: a. Determine which decision would maximise expected profits. (10) b. Compute the maximum amount that should be paid for a perfect forecast of the economy c. Develop an opportunity loss table for your investment. d. Compute the minimum EOL and indicate which decision would minimise EOL. 1271 Question 3

this is a operational research or quantitative analyses problem

Answer 1

Answer for A) Decision for Investing in the Alternative – Stock Market would Maximize Expected profits Answer for B) Here, Maximum Amount to be paid for a perfect forecast of the economy or maximum EMV Value = 30,000 Answer for C) Opportunity Loss Table for the Investment shown in the MS Excel Sheet with Formula Answer for D) Here, Minimum EOL is 21,500 and Decision for Investing in the Alternative – Stock Market would Minimize EOL,

Pay off Table	State of Nature
Alternative	Good Economy	Poor Economy
Stock Market	80000	-20000
Bonds	30000	20000
CDs	23000	23000
Probability	0.5	0.5
Alternative	Expected Monetary Value or EMV for Each Alternatives
Stock Market	30000
Bonds	25000
CDs	23000
Opportunity Loss Table	State of Nature
Alternative	Good Economy	Poor Economy	Expected Opportunity Loss - EOL
Stock Market	0	43000	21500
Bonds	50000	3000	26500
CDs	57000	0	28500
Probability	0.5	0.5

MS Excel Formula

1	B	C	D	E
2	Pay off Table	State of Nature
3	Alternative	Good Economy	Poor Economy
4	Stock Market	80000	-20000
5	Bonds	30000	20000
6	CDs	23000	23000
7	Probability	0.5	0.5
8
9	Alternative	Expected Monetary Value or EMV for Each Alternatives
10	Stock Market	=(C4*C7)+(D4*D7)
11	Bonds	=(C5*C7)+(D5*D7)
12	CDs	=(C6*C7)+(D6*D7)
13
14	Opportunity Loss Table	State of Nature
15	Alternative	Good Economy	Poor Economy	Expected Opportunity Loss - EOL
16	Stock Market	=C4-C4	=D6-D4	=($C$19*C16)+($D$19*D16)
17	Bonds	=C4-C5	=D6-D5	=($C$19*C17)+($D$19*D17)
18	CDs	=C4-C6	=D6-D6	=($C$19*C18)+($D$19*D18)
19	Probability	0.5	0.5