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

question 39

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

If the advisor predicts a Bear market the revised probability of a Bear market, P (S₂|F₂) , is ________.

• A)0.524
• B)0.636
• C)0.784
• D)0.812
• E)0.000

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Definitions:

Assessed Values

Assessed values are the valuation of property, usually by a public tax assessor, for the purpose of determining property taxes.

Mill Rate

The amount of tax payable per dollar of the assessed value of a property.

Current Assessment

An evaluation or estimation of the present status, value, or condition of something.

Percentage

A fraction or ratio expressed as a part of 100, used to denote a proportion of a whole.