Answer to Question #236155 in Math for SHARPY MOONO

Question

An investor has a certain amount of money available to invest now. Three alternative investments 

are available. The estimated profit 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 

Based on his own past experience, the investor assigns the following probabilities to each 

economic condition: 

( ) ( ) ( ) Economy declines 0.30 No change 0.50 Economy expands 0.20

P

P

P

=

=

= 

i. 

Determine the optimal action based on the maximax criterion        

ii. 

Determine the optimal action based on the maximin criterion        

iii. 

Compute the expected monetary value (EMV) for each investment    

Answer 1

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