Management has constructed the below table of estimates reflecting the possible returns and probabilities for pessimistic, most likely and optimistic results. Possible outcomes probability return(n$) Pessimistic 0.4 14.00 Most likely 0.2 34.00 Optimistic 0.4 6.00 a) Determine the expected value of return for the above company b) What is the risk involved if the company chooses to invest in the above opportunity?

Management has constructed the below table of estimates reflecting the possible returns and probabilities for pessimistic, most likely and optimistic results. Possible outcomes probability return(n$) Pessimistic 0.4 14.00 Most likely 0.2 34.00 Optimistic 0.4 6.00 a) Determine the expected value of return for the above company b) What is the risk involved if the company chooses to invest in the above opportunity?

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 13P: The following profit payoff table was presented in Problem 1: The probabilities for the states of...

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You have been hired at the investment firm of Bowers Noon. One of its clients doesnt understand the value of diversification or why stocks with the biggest standard deviations dont always have the highest expected returns. Your assignment is to address the clients concerns by showing the client how to answer the following questions: d. Construct a plausible graph that shows risk (as measured by portfolio standard deviation) on the x-axis and expected rate of return on the y-axis. Now add an illustrative feasible (or attainable) set of portfolios and show what portion of the feasible set is efficient. What makes a particular portfolio efficient? Dont worry about specific values when constructing the graphmerely illustrate how things look with reasonable data.
The following profit payoff table was presented in Problem 1: The probabilities for the states of nature are P(s1) = 0.65, P(s2) = 0.15, and P(s3) = 0.20. What is the optimal decision strategy if perfect information were available? What is the expected value for the decision strategy developed in part (a)? Using the expected value approach, what is the recommended decision without perfect information? What is its expected value? What is the expected value of perfect information?
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assume that an individual investor wants to select one market segment for a new investment. a forecast shows stable to declining economic conditions with the following probabilities: improving (0.2), stable (0.5), and declining (0.3). what is the preferred market segment for the investor, and what is the expected return percentage?
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