b. Maximin The profit or low c Equal likelihood d. Expected value e Create a sen

Question

b. Maximin The profit or low c Equal likelihood d. Expected value e Create a sensitivity graph comparing the different alternatives as the probability of and poor, will determine the profit and loss from his investment.Construct an Exce f one purd 5. John has to determine which stock he should invest in: stock A or stock·The Dr the expected value for each decision and select the best one. GOOD (0.6 $12,000 $3.500 DECISION POOR (0.4) needs to that th s A farmer Stock A Stock B -$3.000 3,000 table is given.Cos Using the spreadsheet find the best decision for the following a. Determine a. Maximax b. Create a ser b Maximin c Equal likelihood d. Expected value e. What does the probability of good have to be to make the two decisions equally attractive w 9. ABC can se depend on and selling to sales of to expected value?

Explanation / Answer

a) Maximax

Maximum maximum payoff is by stock A ( 12000). Hence, we sould choose stock A

b) Maximin- Highest minimum payoff is in Stock B(3000). Hence, we should choose stock B.

c) Equal likelihood-

Stock A - Payoff = (12000-3000)*0.5 = 4500

Stock B - Payoff = (3500+3000)*0.5=3250

Hence, Stock A

d) Expected value

A - 12000*0.6-3000*0.4 = 6000

B - 3500*0.6+3000*0.4 = 3300

Hence, Stock A

e)

12000*p -3000*(1-p)= 3500*p+3000*(1-p)

8500*p = 6000(1-p)

14500p=6000

p=60/145

p=0.4137

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