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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

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. 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 2 3.1 4 4.3 5

Stock growth fund -3 -2 2.5 4 6

Bond fund 6 5 3 3 2

Government fund 4 3.6 3.2 3 2.8

Risk fund -9 -4.5 1.2 8.3 14.7

Savings bonds 3 3 3.2 3.4 3.5

(a=.4)

PROBLEMS 575

Determine the best investment, using the following decision criteria.

a. Maximax

b. Maximin

c. Equal likelihood

Jun 22 2020 View more View Less

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