Question 1 NewCrest is looking to invest at most $500,000, The investment can be divided among three options. The return on each option depends on the economic outlook, which is shown in Table 1. For example, if the economic outlook is bright, investing SI in option I will generate a gain of $3, and investing $1 in option II will result in a loss of $5. Table 1: Return per dollar invested in the different options Return per dollar invested in option Economic outlook I Bright Gloomy III 3 -2 -5 6. -3 Axel, a business executive, proposed two alternatives to NewCrest. One is investing S100,000 in option 1, $200,000 in Il and $150,000 in III. The other is investing $60,000 in option I, $100,000 in II and $125,000 in II. NewCrest takes a conservative approach to decision-making. That is, it chooses the alternative that maximizes the minimum return produced by the two outcomes of the economic outlook. Discuss among the two alternatives proposed by Axel, which one NewCrest will choose. Please write clearly alternatives, states of nature and payoffs in a payoff (a)
Question 1 NewCrest is looking to invest at most $500,000, The investment can be divided among three options. The return on each option depends on the economic outlook, which is shown in Table 1. For example, if the economic outlook is bright, investing SI in option I will generate a gain of $3, and investing $1 in option II will result in a loss of $5. Table 1: Return per dollar invested in the different options Return per dollar invested in option Economic outlook I Bright Gloomy III 3 -2 -5 6. -3 Axel, a business executive, proposed two alternatives to NewCrest. One is investing S100,000 in option 1, $200,000 in Il and $150,000 in III. The other is investing $60,000 in option I, $100,000 in II and $125,000 in II. NewCrest takes a conservative approach to decision-making. That is, it chooses the alternative that maximizes the minimum return produced by the two outcomes of the economic outlook. Discuss among the two alternatives proposed by Axel, which one NewCrest will choose. Please write clearly alternatives, states of nature and payoffs in a payoff (a)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Question 1
NewCrest is looking to invest at most $500,000. The investment can be divided among three
options. The return on each option depends on the economic outlook, which is shown in
Table 1. For example, if the economic outlook is bright, investing $1 in option I will generate
a gain of $3, and investing $1 in option II will result in a loss of $5.
Table 1: Return per dollar invested in the different options
Return per dollar invested in option
Economic outlook I
Bright
Gloomy
II
-5
II
7
3
-2
-3
Axel, a business executive, proposed two alternatives to NewCrest. One is investing
$100,000 in option I, $200,000 in II and $150,000 in III. The other is investing
$60,000 in option I, $100,000 in II and $125,000 in III. NewCrest takes a
conservative approach to decision-making. That is, it chooses the alternati ve that
maximizes the minimum return produced by the two outcomes of the economic
outlook. Discuss among the two alternatives proposed by Axel, which one NewCrest
will choose. Plea se write clearly alternatives, states of nature and payoffs in a payoff
table. Please limit the answer to within one page.
(a)
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