Question: =3-20 Mickey Lawson is considering investing some money that he inherited. The following payoff table gives the profits that would be realized during the next

=3-20 Mickey Lawson is considering investing some money that he inherited. The following payoff table gives the profits that would be realized during the next year for each of three investment alternatives Mickey is considering:

STATE OF NATURE DECISION ALTERNATIVE GOOD ECONOMY POOR ECONOMY Stock market 80,000 -20,000 Bonds 30,000 20,000 CDs 23,000 23,000 Probability 0.5 0.5

(a) What decision would maximize expected profits?

(b) What is the maximum amount that should be paid for a perfect forecast of the economy?

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