1. (15 points) You have an opportunity to invest and are considering high-risk stocks, low-risk stocks,...

 

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1. (15 points) You have an opportunity to invest and are considering high-risk stocks, low-risk stocks, and a savings account. You may only invest in one type of instrument. There is no cost to put funds into a savings account, but there is a one-time brokerage fee of $200,000 if stocks are purchased. Stock Market Change High-risk stocks Low-risk stocks Annual Anticipated Investment Outcomes Up $1,700,000 $1,200,000 Probability of market change Savings Account 50% $500,000 Same $300,000 $400,000 Down $800,00 $100,000 30% 20% $500,000 $500,000 (a) Construct the decision tree for this investment (b) Determine the most optimal investment to market based on the expected value of the return. (c) If before making your decision, you knew exactly which of the three routes the market would take, what would the expected value of this information be worth? 1. (15 points) You have an opportunity to invest and are considering high-risk stocks, low-risk stocks, and a savings account. You may only invest in one type of instrument. There is no cost to put funds into a savings account, but there is a one-time brokerage fee of $200,000 if stocks are purchased. Stock Market Change High-risk stocks Low-risk stocks Annual Anticipated Investment Outcomes Up $1,700,000 $1,200,000 Probability of market change Savings Account 50% $500,000 Same $300,000 $400,000 Down $800,00 $100,000 30% 20% $500,000 $500,000 (a) Construct the decision tree for this investment (b) Determine the most optimal investment to market based on the expected value of the return. (c) If before making your decision, you knew exactly which of the three routes the market would take, what would the expected value of this information be worth?