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 C Economy declines 500 -2000 -7000 No charge 1000 2000 -1000 Economy Expand 2000 5000 20,000
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
- Determine the optimal action based on the maximax criterion
- Determine the optimal action based on the maximin criterion
iii. Compute the
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