The Beatles have taken keen interest in investing and has been getting good returns over the past several years. They invest primarily in the stock market. Over the past several months, however, The Beatles has become very concerned about the stock market as a good investment. In some cases, it would have been better for The Beatles to have their money in a bank than in the market. During the next year, they must decide whether to invest $45,678 in the stock market or in a certificate of deposit (CD) at an interest rate of 6.66%. If the market is good, The Beatles believe that he could get a 22.22% return on their money. With a fair market, they expect to get an 11.11% return. If the market is bad, they will most likely get no return at all—in other words, the return would be 0.00%. The Beatles estimate that the probability of a good market is 0.55, the probability of a fair market is 0.33, and the probability of a bad market is 0.12, and they wish to maximize their long-run average return.

(a) Develop a decision table for this problem.

(b) What is the best decision?

Answer rating: 100% (QA)

a Decision Table Good Market Fair Market Bad Market Stock 2222 1111 000 CD 666 666 666 b ... View the full answer