Use the Optimistic, Conservative and Regrets payoff analysis approaches. State which product(s) Mr Sng should invest in and what monetary return he can expect from each approach (ii) As you have only enough funds for one product, identify the most appropriate investment product.
Use the Optimistic, Conservative and Regrets payoff analysis approaches. State which product(s) Mr Sng should invest in and what monetary return he can expect from each approach (ii) As you have only enough funds for one product, identify the most appropriate investment product.
Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter8: Risk And Rates Of Return
Section: Chapter Questions
Problem 22SP
Related questions
Question
Mr Sng is a retiree in his late sixties. He has $100,000 to invest. He has no regular source of
income and no other assets. He is evaluating between 3 different lump-sum financial products
shown in Table 3. All products require a minimum investment sum of $100,000. Monetary
returns represent the net gain after one year of investing in the product. For example, if Mr Sng
chose to invest in Product B, he may lose $5,000 after one year if the GDP growth is negative.
He will earn $8,000 if the GDP growth exceeds 2% at the end of the year.
If you were in the shoes of Mr Sng, how would you select the appropriate investment product
for a time horizon of one year?
(i) Use the Optimistic, Conservative and Regrets payoff analysis approaches. State which
product(s) Mr Sng should invest in and what monetary return he can expect from each
approach
(ii) As you have only enough funds for one product, identify the most appropriate investment
product. [Hint: Be sure to consider the needs of Mr Sng who is a retiree.]
Do provide all equations, workings , tables and graph available
Transcribed Image Text:Table 3. Comparison of Returns from 3 Financial Products
GDP Growth
Monetary Returns
Product A (Crypto)
Product B (Stocks)
Product C (Bonds)
<0%
-15000
-5000
2500
0-2%
10000
6000
2500
> 2%
25000
8000
2500
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