PLEASE DO NOT ANSWER IF NOT ON ********EXCEL*******- THIS IS MY 2ND TIME POSTING

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PLEASE DO NOT ANSWER IF NOT ON ********EXCEL*******- THIS IS MY 2ND TIME POSTING THE SAME QUESTION, I NEED TO SEE IF I AM DOING THE EXCEL CORRECTLY.

2. Etsuko needs to decide between two choices stock investments-IBN and Microsopht. The return for each investment given two future economic conditions is shown in the following payoff table. Set up an Excel spreadsheet to determine what probability for each market condition would make her invest- ment choice even between IBN and Microsopht. STEADY $1,500 -$40,000 B00M DECISION IBN Microsopht $6,000 $100,000

Explanation / Answer

Ans:

For the choice to be even between IBN and Microsopht,expected value must be same for both:

p*6000+(1-p)*1500=p*100000-(1-p)*40000

(1-p)*41500=p*94000

1-p=2.265p

1=3.265p

p=1/3.265=0.306

1-p=0.694

P(boom)=0.306

p(steady)=0.694

P(boom)=0.3063

P(steady)=1-0.3063=0.6937

p IBN Microsopht 0.306 2877 2840 0.3 2850 2000 0.35 3075 9000 0.31 2895 3400 0.3061 2877.45 2854 0.3062 2877.9 2868 0.3063 2878.35 2882 0.30635 2878.575 2889

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