You want to invest Taka 50,000 in the financial market for 2 years in either of following two options. Your minimum attractive rate of returns (MARR) is 5% per year. What will you choose? Draw and solve by decision tree.

Option 1: Buy 1,000 shares of a startup company stock at Taka 50 per share. There will be a brokerage (buy/sell) fee of Taka 100 for this size of transaction. Assume that you may get (A) 50% profit return (probability 0.35) or (B) 9% profit return (probability 0.4), or (C) suffer 10% loss (probability 0.25). 20% income tax applies on long term gain.

Option 2: Purchase a Taka 50,000 Bangladesh Sanchaypatra (BSP), which pays interest at an effective annual rate of 4%. Bank transaction fee is Taka 150. No income tax.

Answer rating: 100% (QA)

Option1 The possible investment outcomes are A 50 profit return probability 035 In this scenario 20 ... View the full answer