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Model the following investment decision as an In uence Diagram:
20 questions left - Renews Dec. 2, 2022

a high-risk stock
Enter question
- $200 brokerage fee

Payoff-

$1700 if the market goes up Continue to post

$300 if market stays neutral

-$800 if the market goes down

a low-risk stock

- $200 brokerage fee

Payoff-

$1200 if the market goes up

$400 if market stays neutral

$100 if the market goes down

a savings account that pays a sure $500

My Textbook Solutions
P(Market Up)=0.491, P(Market Flat) = 0.294, and P(Market Down) = 1-P(Market Up)-P(Market Flat).
Supply Chain Manage…
What is the Expected Monetary Value (EMV) of the decision? State your answers in terms of dollars
and cents. (ie. Dollars, accurate to two decimal points.)  
Solutions ➔

Expert Answer 100% (1 rating) Supply Chain Manage…

 
This solution was written by a subject matter expert. It's designed to help students like you learn core concepts.
Solutions ➔
Anonymous answered this
556 answers
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Given information is,

P(Market Up)=0.491,

P(Market Flat) = 0.294,

P(Market Down) = 1-P(Market Up)-P(Market Flat).

P(Market Down) = 1-0.491- 0.294

P(Market Down) = 1-0.785

P(Market Down) = 0.215

Expected money related Value for a high danger stock

First,

let us nd out the high risk shock

the data given is,

a high-risk stock

- $200 brokerage fee (-200)

Payoff-

$1700 if the market goes up ,

therefore (1700*0.491)

$300 if market stays neutral

therefore, (300*0.294)

-$800 if the market goes down

therefore, (800*0.215)

Then,

- 200+1700*(0.491)+300*(0.294)- 800*(0.215)

= - 200+834.7+88.2-172

= 922.9-200-172

= 922.9 - 372

= $ 550.9

Expected money related Value for a generally safe stock

a low-risk stock

- $200 brokerage fee

Payoff-

$1200 if the market goes up,

therefore, (1200*0.491)

$400 if market stays neutral

therefore, (400*0.294)

$100 if the market goes down

therefore, (100*0.215)

then,

- 200+1200*(0.491)+400*(0.294)+100*(0.215)

= - 200+589.20+117.60+21.5

= -200+728.3

= $ 528.3

Anticipated nancial Value for a sparing record

= $ 500

since most noteworthy EMV is $ 550.9 of a high danger stock , so the choice is High Risk stock and
EMV is $ 550.9 .

Thank you

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