1. As a follow on to the prior problem, assume that the investment committee det

Question

1.       As a follow on to the prior problem, assume that the investment committee determined the probabilities below:

Probability the competitor will response 30%, will not respond 70%

Probability of each economic state over the six year horizon Weak – 15%., Normal – 60% and Strong 25%

Please complete the table of joint probabilities (by multiplying the economy probability by the competitor response probability) below and then calculate the expected net present value.

Competitor        Weak             Normal               Strong
               Response         Economy         Economy            Economy

                    Yes              
                     No               

Explanation / Answer

Answer )

Competotors Probability Economic state Probability Net Probability Respond 30% Week 15% 4.500% Normal 60% 18.000% Strong 25% 7.500% Not Respond 70% Week 15% 10.500% Normal 60% 42.000% Strong 25% 17.500% 100.000%

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