Mustafa Kurtulmuş 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, however, Mustafa has become very concerned about the stock market as a good investment. In some cases, it would have been better for Mustafa to have his money in a bank than in the market. During the next year, Mustafa must decide whether to invest 10,000 TRY in the stock market or in a certificate of deposit (CD) at an interest rate of 9%*. If the market is good, Mustafa believes that he could get a 14% return on his stock market investment. 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%. Mustafa 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. (* Hint: Clearly, if Mustafa decides to invest 10,000 TRY in a certificate of deposit (CD) (in a bank), he will get a 9% return whatever the market is good, fair or bad.) 2.1. Develop a decision table for this problem.
Mustafa Kurtulmuş 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, however, Mustafa has become very concerned about
the stock market as a good investment. In some cases, it would have been better for Mustafa to have his money in a bank than in the
market. During the next year, Mustafa must decide whether to invest 10,000 TRY in the stock market or in a certificate of deposit (CD)
at an interest rate of 9%*. If the market is good, Mustafa believes that he could get a 14% return on his stock market investment. 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%. Mustafa 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.
(* Hint: Clearly, if Mustafa decides to invest 10,000 TRY in a certificate of deposit (CD) (in a bank), he will get a 9% return whatever
the market is good, fair or bad.)
2.1. Develop a decision table for this problem.
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