Questions 7 and 8 refer to the following information. An investor is trying the

Question

Questions 7 and 8 refer to the following information. An investor is trying the stock market in one year same, possible outcomes are to determine what stock to invest in. The wisdom of the decision depends on the state of . There are three possible states of nature: the market could go down, stay about the or it could go up. The investor has narrowed the choices to four stocks. The profits for the different summarized in the following payoff table. The units are thousands of dollars. up Unchanged Market down STOCK 15 20 10 100 -10 -15 8 0 -50 7 Using the conservative decision making criterion, the investor should choose A) STOCK 1 B) STOCK 2 C) STOCK 3 D) STOCK 4 8 be unchanged? What is the regret (lost opportunity) to the investor if she chooses stock 2 and the market turns out to A) -2 B) 0 C) 2 D) 3

Explanation / Answer

7) Option C. Stock 3.

Being conservative, Stock 3 gives a profit even when then market goes down

8) Lost opportunity = 8-5 = 3 (Highest in unchanged minus the value of stock 2)

Option D

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.