STUDENT NAME STUDENT NUMBER

RIZKA HANANDY 2206020753

TINASHE CLIVE GONDO 2206023635
YOGA DWI PUTRA P 2106773922
LACKSON MUCHIMBA 2206023881
YOPIANUS ANYANG 2206128651

GROUP E (5) TUGAS KULIAH 12

DECISION ANALYSIS
LECTURER DR. RIYANTO S.Si, M.Si
CLASS APLIKASI STATISTIK (AKP)

FACULTY OF ADMINISTRATIVE SCIENCES

ADMINISTRATIVE SCIENCES MASTER STUDY PROGRAM
SPECIALISATION PUBLIC POLICY ANALYSIS
JAKARTA
22 MAY 2023
 TASK 1
A Fund Manager who has a number of funds is faced with three alternative investment
portfolios, in shares A, B and C. Information regarding the expected net profit from the
investment portfolio above is as follows:
Economic Condition Alternative Investments Options
A B C
Economy sluggish 500 -2000 -7000
The Economy has not changed 1000 2000 -1000
Expansive Economy 2000 5000 20000

Note: figures are in millions of rupiah. The Fund Manager's subjective probability of the
occurrence of the three economic conditions is as follows:
Economic Condition Opportunity
Economy sluggish 0.30
The Economy has not changed 0.50
Expansive Economy 0.20
Total 1.00

1. Question
You are asked to help the fund manager to make a choice of the most profitable portfolio
based on EMV criteria
*EMV = Expected Monetary Value
1. Solution

Economic Condition Opportunity Alternative Investments Options

A B C
Economy sluggish 0.30 500 -2000 -7000
The Economy has not 0.50 1000 2000 -1000
changed
Expansive Economy 0.20 2000 5000 20000

Expected Monetary Value (EMV) for A= $500(0.30) + $1000(0.50) + $2000(0.20) = $1050

Expected Monetary Value (EMV) for B= (-$2000) (0.30) + $2000(0.50) + $5000(0.20) =
$1400
Expected Monetary Value (EMV) for C= (-$7000) (0.30) +(-$1000) (0.50) + $20000(0.20) =
$1400

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While Portfolios B and C have the same EMV of $1400, Portfolio A has a lower EMV of
$1050. The EMV represents each portfolio's expected value or average outcome, considering
the probabilities assigned to each possible outcome. Therefore, based on EMV alone,
Portfolio B would be the preferred choice. However, it's important to note that EMV alone
may not capture the entire picture of a portfolio's attractiveness. Other factors, such as risk
tolerance, diversification, and potential upside or downside scenarios, should also be
considered when making investment decisions.
Therefore, based on the EMV criteria, the most profitable portfolio would be Portfolio
B with an EMV of $1400 and a greater chance of not changing. The Fund Manager
must select Portfolio B.

2. Question
What is the Expected Value of Perfect Information from the problem above?
The following EVM were computed for the problem above:
 Expected Monetary Value (EMV) for A= $1050
 Expected Monetary Value (EMV) for B= $1400
 Expected Monetary Value (EMV) for C= $1400
The investment option was selected under the expected monetary value strategy because it
resulted in the maximum expected payoff of $1400. This decision was made with no
information about the states of nature.
Expected Monetary Payoff of Perfect Information
Economy sluggish Option A = $500 (0.30)
The Economy has not changed Option B = $2000 (0.5)
Expansive Economy Option C = $20000(0.2)
Expected Monetary Payoff of Perfect Information = $500 (0.30) + $2000 (0.5) + $20000(0.2)
=$150 + $1000 + $4000
=$5150
2. Solution
The value of perfect information is the difference between this expected monetary
payoff ($5150) and the expected monetary payoff with no information ($1400). ($5150-
$1050= $3750). It would not be economically wise to spend more than $3750 to obtain
perfect information about these states of nature.

THE END

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