Allen Young has always been proud of his personal investment strategies and has done very well over the past several years. He invests primarily in the stock market. Over the past several months, how ever, Allen has become very concerned about the stock market as a good investment. In some cases it would have been better for Allen to have his money in a bank than in the market. During the next year, Allen must decide whether to invest $ 10,000 in the stock market or in a certificate of deposit (CD) at an interest rate of 9%. If the market is good, Allen believes that he could get a 14% return on his money. With a fair market, he expects to get an 8% return. If the market is bad, he will most likely get no return at all - in other words, the return would be 0%. Allen estimates that the probability of a good market is 0.4, the probability of a fair market is 0.4, and the probability of a bad market is 0.2, and he wishes to maximize his long - run average return. (a) Develop a decision table for this problem. (b) What is the best decision? 2- 3-22 Allen Young has always been proud of his personalinvestment strategies and has done very well overthe past several years. He invests primarily in thestock market. Over the past several months, how-ever, Allen has become very concerned about thestock market as a good investment. In some cases itwould have been better for Allen to have his moneyin a bank than in the market. During the next year,Allen must decide whether to invest $10,000 in thestock market or in a certificate of deposit (CD) at aninterest rate of 9%. If the market is good, Allenbelieves that he could get a 14% return on hismoney. With a fair market, he expects to get an 8%return. If the market is bad, he will most likely getno return at all-in other words, the return would be0%. Allen estimates that the probability of a goodmarket is 0.4, the probability of a fair market is 0.4,and the probability of a bad market is 0.2, and hewishes to maximize his long-run average return.(a) Develop a decision table for this problem.(b) What is the best decision?

A)- Decision table is given below- State of market Good Fair Bad Amount of…

Answered: Allen Young has always been proud of…

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter2: Financial Statements And The Annual Report

Section: Chapter Questions

Problem 2.3DC: Analysis of Cash Flow for a Small Business Charles, a financial consultant, has been self-employed...

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Allen Young has always been proud of his personal investment strategies and has done very well over the past several years. He invests primarily in the stock market. Over the past several months, how ever, Allen has become very concerned about the stock market as a good investment. In some cases it would have been better for Allen to have his money in a bank than in the market. During the next year, Allen must decide whether to invest $ 10,000 in the stock market or in a certificate of deposit (CD) at an interest rate of 9%. If the market is good, Allen believes that he could get a 14% return on his money. With a fair market, he expects to get an 8% return. If the market is bad, he will most likely get no return at all - in other words, the return would be 0%. Allen estimates that the probability of a good market is 0.4, the probability of a fair market is 0.4, and the probability of a bad market is 0.2, and he wishes to maximize his long - run average return. (a) Develop a decision table for this problem. (b) What is the best decision?

2- 3-22 Allen Young has always been proud of his personal
investment strategies and has done very well over
the past several years. He invests primarily in the
stock market. Over the past several months, how-
ever, Allen has become very concerned about the
stock market as a good investment. In some cases it
would have been better for Allen to have his money
in a bank than in the market. During the next year,
Allen must decide whether to invest $10,000 in the
stock market or in a certificate of deposit (CD) at an
interest rate of 9%. If the market is good, Allen
believes that he could get a 14% return on his
money. With a fair market, he expects to get an 8%
return. If the market is bad, he will most likely get
no return at all-in other words, the return would be
0%. Allen estimates that the probability of a good
market is 0.4, the probability of a fair market is 0.4,
and the probability of a bad market is 0.2, and he
wishes to maximize his long-run average return.
(a) Develop a decision table for this problem.
(b) What is the best decision?

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