Economic Condition
Market Segment	Improving	Stable	Declining
Computers	10%	2%	-4%
Financial	8%	5%	-3%
Manufacturing	6%	4%	-2%
Pharmaceuticals	6%	5%	-1%

a. Assume that an individual investor wants to select one market segment for a new investment. A forecast shows improving to declining economic conditions with the following probabilities: improving (0.2), stable (0.5), and declining (0.3). What is the preferred market segment for the investor, and what is the expected return?

b. At a later date, revised forecast shows a potential for an improvement in economic conditions. New probabilities are as follows: improving (0.4), stable (0.4), and declining (0.2). What is the preferred market segment for the investor based on these new probabilities? What is the expected return?

Directions: You will need to (1) create Decision Trees similar to Page 34 of the PowerPoint Slides, (2) show calculations for expected return, and (3) answer question a and b respectively.

PDC Decision Tree With State-of-nature Branch Probabilities 8 Small (d) 2 Strong (S) P(si) = 0.8 Weak () P(82) = 0.2 7 Strong (1) 14 Medium (d) P(s) = 0.8 1 Weak (52) 5 P($) = 0.2 Strong (S) 20 Large (dz) P(S) = 0.8 4 Weak (S2) -9 P(s) = 0.2 34