1. An investment manager has a dilemma of how to invest K10 000 000. He could either invest in stocks, bonds, certificates of deposit (CD) or a mixture of the three. The economy could be stagnant 25%, slow growth 45% and rapid growth 30%.
   1. For the stagnant economy –K500 000, -K100 000, K300 000 and –K200 000 would be the payoffs for the different investments
   2. For the slow growth economy K700 000, K600 000, K500 000 and K650 000 would be the payoffs for the different investments
   3. For the rapid growth economy K2200 000, K900 000, K750 000 and K1300 000 would be the payoffs for the different investments.
   4. Compute the expected monetary value (EMV).
2. A landlord can either lease for one or two years or sell offices out rightly for K100 Million with payoffs as follows:

Lease -100 50 150

Sell 100 100 100

2. 1. The probability of rejecting is 30%, leasing for one year is 50% and for two years 20%. What is the optimal decision strategy if perfect information were available?
   2. What is the expected value of perfect information?
3. A decision maker is looking to minimizing costs through three alternative decisions a₁ , b₂ and c₃ under two states of nature/events S₁ and S₂ with S₁ having a probability of 30% .

For a1 payoffs for s1 K100 million and s2 K540 million

For a2 payoff for s1 K150 million and s2 –K50 million

For a3 payoff for s1 K350 million and s2 K320 million

1. Find EMV and recommend the course of action
2. Find the EMV under certainty
3. Use the EVC to find the EVPI
4. Determine the opportunity loss table
5. Find the course of action that minimizes EOL
6. Compare the minimum EOL with the EVPI.

Answer rating: 100% (QA)

G5 MINC5E5 A C D E F G H 1 2 S1 S2 S3 X MIN ... View the full answer