This paper circulates around the core theme of posterior probabilities of the high and low states of the economy. Will he change his decision? together with its essential aspects. It has been reviewed and purchased by the majority of students thus, this paper is rated 4.8 out of 5 points by the students. In addition to this, the price of this paper commences from £ 99. To get this paper written from the scratch, order this assignment now. 100% confidential, 100% plagiarism-free.
Mr. Smart is an investor with $15,000 to invest. He has narrowed
his choice down to two possible inv 1 answer below » Mr. Smart is an investor with $15,000 to invest. He has narrowed
his choice down to two possible investments: Mutual fund Common shares in Buyme Corporation Figure 3.6 gives a decision tree for Mr. SmartAc€?cs situation. Mr.
Smart is risk-averse. The amount of utility he derives from a
payoff is Utility = 2In (payoff). Because of a planned major
purchase, Mr. Smart intends to sell his investment one year later.
The payoffs represent the proceeds from the sale of the investment
and receipt of any dividends, net of initial investment. The
probabilities represent Mr. SmartAc€?cs prior View complete question » Mr. Smart is an investor with $15,000 to invest. He has narrowed
his choice down to two possible investments: Mutual fund Common shares in Buyme Corporation Figure 3.6 gives a decision tree for Mr. SmartAc€?cs situation. Mr.
Smart is risk-averse. The amount of utility he derives from a
payoff is Utility = 2In (payoff). Because of a planned major
purchase, Mr. Smart intends to sell his investment one year later.
The payoffs represent the proceeds from the sale of the investment
and receipt of any dividends, net of initial investment. The
probabilities represent Mr. SmartAc€?cs prior probabilities about the
state of the economy (good or bad) over the coming year. Required: Calculate Mr. SmartAc€?cs
expected utility for each action, and indicate which action he
would choose if he acted on the basis of his prior information. Now, suppose Mr. Smart
decides that he would like to obtain more information about the
state of the economy rather than simply accepting that it is just
as likely to be good as bad. He decides to take a sample of current
annual reports of major corporations. Every annual report shows
that its firm is doing well, with increased profits over the
previous year. The probability that there would be such healthy
profit if the state of the economy actually was good is 0.75. The
probability of such healthy profits is only 0.10 if the state of
the economy actually was bad. Use BayesAc€?c theorem to calculate Mr. SmartAc€?cs posterior
probabilities of the high and low states of the economy. Will he
change his decision? View less » Aug 05 2015 06:21 AM
