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

question 44

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 Bull market the EMV of the Bonds alternative, using revised probabilities, is closest to ________.

• A)$85,240
• B)$25,710
• C)$108,450
• D)$75,480
• E)$90,000

---

Definitions:

Financial Satisfaction

The feeling of contentment or happiness with one's financial situation, including income, savings, and investments.

Hunger-Suppressing Hormone

A hormone like ghrelin that regulates feelings of hunger and satiety, helping to control appetite.

Ghrelin

A hormone produced in the stomach that stimulates appetite, promoting the feeling of hunger.

Arousal Theory

A theory in psychology that suggests people are motivated to maintain an optimal level of arousal, which varies by individual, to perform tasks optimally.