Ray Crofford Is Evaluating Investment Alternatives for the $100,000 Which $\quad$

question 54

Multiple Choice

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. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Actual Market }$
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Market Condition }$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text {Advisor's}$$\quad$$\text {Condition}$
$\begin{array}{c}\begin{array}{|c|c|c|c|}\hline \text { Investment } & \text { Bull (0.8) } & \text { Bear (0.2) } & \text { EMV } \\\hline \text { Bonds } & 12 & -3 & 9 \\\hline \text { Stocks } & 25 & -30 & 14 \\\hline \end{array}&\begin{array}{|c|c|c|}\hline\text { Prediction } & \text { Bull }\left(S_{1}\right) & \text { Bear }\left(S_{2}\right) \\\hline \text { Bull }\left(F_{1}\right) & 0.9 & 0.3 \\\hline \text { Bear }\left(F_{2}\right) & 0.1 & 0.7\\\hline \end{array}\end{array}$

The probability that the advisor predicts a Bull market and the Bull market is the actual condition p(F₁?S₁) is ________.

• A)0.78
• B)0.9
• C)0.953
• D)0.923
• E)0.72

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Definitions:

All-Natural Ice Cream

Ice cream made exclusively with natural ingredients, without artificial flavors or preservatives.

Market Price

The current price at which a good or service can be bought or sold in a competitive market.

Break-Even Price

The price point at which total revenues equal total costs, resulting in no profit or loss for the business, used as a measure of financial sustainability.

Variable Costs

Expenses that vary in relation to a company's production volume or operational activities.