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

question 48

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 EMV of the Stocks alternative, using revised probabilities, is closest to ________.

• A)$132,300
• B)-$73,900
• C)$127,600
• D)-$99,800
• E)$1005,000

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Definitions:

Population Variances

A measure of the dispersion or spread of a set of values in a population, reflecting how much the values differ from the population mean.

One-Way ANOVA

A statistical test that compares the means of three or more independent samples to determine if at least one sample mean significantly differs from the others.

Sample Sizes

The number of observations or units in a subset of the population chosen for analysis in a statistical study.

Completely Randomized Design

Completely Randomized Design is an experimental design where subjects are randomly assigned to treatments, ensuring that the treatments are allocated without bias.