An investor has a certain amount of money available to invest now. Three alternative investments are available. The estimated profits, in Kwacha, of each investment under each economic condition are indicated in the following payoff table: Event Investment selection A B
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
An investor has a certain amount of money available to invest now. Three alternative investments are available. The estimated profits, in Kwacha, of each investment under each economic condition are indicated in the following payoff table:
|
|
Investment selection |
||
|
A |
B |
C |
|
|
Economy declines |
500 |
-2000 |
-7000 |
|
No charge |
1000 |
2000 |
-1000 |
|
Economy Expand |
2000 |
5000 |
20,000 |
Based on his own past experience, the investor assigns the following probabilities to each economic condition:
P (Economy declines) = 30
P (No Change) = 0.50
P (Economy expands) = 0.20
- Compute the expected opportunity loss (EOL) for each investment
- Explain the meaning of the
expected value of perfect information (EVPI) in this
problem.
vii. Compute the coefficient of variation for each investment.
viii. Compute the return-to-risk ratio (RTRR) for each investment.
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