Posted by Quenice on .
Allen must decide whether to invest $10,000 in the stock market or in a certificate of deposit (CD) at an interest rate of 9%. If the market is good , he believes that he could get a 14% return on his money. With a fair market, he expects to get an 8% return. If the market is bad, he will most likely get no return at all-in other words, the return would be 0%,. Allen estimates hat the probability of a good market is 0.4, the probability of a fair market is 0.4, and the probability of a bad market is 0.2, and he wishes to maximaize his long-run average return. (a) Develop a decision table for this problem. (b) What is the best decision?