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B01 - Model The Following Investment Decision As An Infl...
B01 - Model The Following Investment Decision As An Infl...
a high-risk stock
Enter question
- $200 brokerage fee
Payoff-
a low-risk stock
Payoff-
P(Market Up)=0.491,
First,
a high-risk stock
Payoff-
therefore (1700*0.491)
therefore, (300*0.294)
therefore, (800*0.215)
Then,
- 200+1700*(0.491)+300*(0.294)- 800*(0.215)
= - 200+834.7+88.2-172
= 922.9-200-172
= 922.9 - 372
= $ 550.9
a low-risk stock
Payoff-
therefore, (1200*0.491)
therefore, (400*0.294)
therefore, (100*0.215)
then,
- 200+1200*(0.491)+400*(0.294)+100*(0.215)
= - 200+589.20+117.60+21.5
= -200+728.3
= $ 528.3
= $ 500
since most noteworthy EMV is $ 550.9 of a high danger stock , so the choice is High Risk stock and
EMV is $ 550.9 .
Thank you
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Q: Use the In uence Diagram created in the prior example to createa Decision Tree. (Investment
options are repeated for yourconvenience.) Test the Decision Tree by changing the probability
ofmarket up, at, and down as follows:P(Market Up)=0.485, P(Market Flat) = 0.293, and P(Market
Down) =1-P(Market Up)-P(Market Flat).What is the Expected Monetary Value (EMV) of the
decision? State your answers in terms of dollars and cents. (ie. Dollars, accur...
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