5. Ann Tyler has come into an inheritance from her grandparents. She is attemptingto decide among several investment alternatives. The return after 1 year is primarilydependent on the interest rate during the next year.51The rate is currently 7%, and Ann anticipates that it will stay the same or go up ordown by at most two points. The various investment alternatives plus their returns($10,000s), given the interest rate changes, are shown in the following table:Interest RateInvestment5%6%7%8%9%Money market fundStock growth fund3.144.3-3-22.54Bond fund6.33Government fund43.63.232.8Risk fund-4.51.28.314.7Savings bonds333.23.43.5Determine the best investment, using the following decision criteria.a. Maximax b. Maximin c. Equal likelihood

Answered: Determine the best investment, using…

Business

Operations Management

Determine the best investment, using the following decision criteria. a. Maximax b. Maximin c. Equal likelihood

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 34P

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Concept explainers

Decision Theory in Operations Management

Decision theory, also known as the theory of choice, is a branch of statistics that deals with making decisions based on the probability of the occurrence of an event. The chief purpose of decision theory is to identify the best course of action for the company with maximum payoffs.

Question

5. Ann Tyler has come into an inheritance from her grandparents. She is attempting
to decide among several investment alternatives. The return after 1 year is primarily
dependent on the interest rate during the next year.
51
The rate is currently 7%, and Ann anticipates that it will stay the same or go up or
down by at most two points. The various investment alternatives plus their returns
($10,000s), given the interest rate changes, are shown in the following table:
Interest Rate
Investment
5%
6%
7%
8%
9%
Money market fund
Stock growth fund
3.1
4
4.3
-3
-2
2.5
4
Bond fund
6.
3
3
Government fund
4
3.6
3.2
3
2.8
Risk fund
-4.5
1.2
8.3
14.7
Savings bonds
3
3
3.2
3.4
3.5
Determine the best investment, using the following decision criteria.
a. Maximax b. Maximin c. Equal likelihood

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