Desmond Taylor is considering investing some money that he inherited. The following payoff table gives...
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Accounting
Desmond Taylor is considering investing some money that he inherited. The following payoff table gives the profits that would be realized during the next year for each of three investment alternatives being considered:
State of Nature
Decision Alternative
Good Economy
Poor Economy
Stock Market
$ 110,000.00
$ (50,000.00)
Bonds
$ 40,000.00
$ 30,000.00
CDs
$ 43,000.00
$ 43,000.00
Probability
0.55
0.45
(a). What decision would maximize expected profit?
(b). What is the maximum amount that should be paid for a perfect forecast of the economy?
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