Question: Money suggests an interesting decision problem for family investments Start
Money suggests an interesting decision problem for family investments. Start with $50,000 to invest over 20 years. There are two possibilities: a low-cost index fund and a fixed-interest investment paying 6.5% per year. The index fund has two possibilities: If equities rise by 6% a year, the $50,000 invested would be worth $160,356. If, on the other hand, equities rise at an average of 10% a year, the $50,000 investment would be worth $336,375. The fixed-interest investment would be worth $176,182. Suppose the probability of equities rising 6% per year is 60% and the probability that they rise 10% per year is 40%. Conduct the decision analysis.
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