Ray Crofford Is Evaluating Investment Alternatives to Invest $100,000 Which

question 67

Multiple Choice

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's) for various market conditions: For the 'Stocks' and 'Bonds' choices,the indifference value of Hurwicz's alpha is ___.

• A)0.82
• B)0.71
• C)0.65
• D)0.33
• E)0.50

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Definitions:

NPV

The calculation of the current value of all future cash flows generated by a project, after accounting for the initial capital expenditure.

IRR

Internal Rate of Return; a metric used in capital budgeting to estimate the profitability of potential investments.

Probability Distributions

A statistical function that describes all the possible values and likelihoods that a random variable can take within a given range.

Portfolio Theory

A body of thought aimed at forming investment portfolios that minimize risk for a given return.