Q&A Hero

Question

Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather. His investment advisor has identified two alternatives and constructed the following tables which show (1) expected profits (in $10,000's) for various market conditions and their probabilities, and (2) the advisor's track record on predicting Bull and Bear markets.



Market Condition
InvestmentBull (0.8)Bear (0.2)EMV
Bonds12-39
Stocks25-3014

Actual Market Condition
Advisor's
PredictionBull (S1)Bear (S2)
Bull (F1)0.90.3
Bear (F2)0.10.7

If the advisor predicts a Bull market the EMV of the Bonds alternative, using revised probabilities, is ________.
a) $85,240
b) $25,710
c) $108,450
d) $75,480

Answer

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