Answer to Question #295861 in Statistics and Probability for Arif

Question

Interest Rates

Investments 5% 6% 7% 8% 9%

Money market fund 1.7 2.8 3.0 3.6 4.5

Stock growth fund -5 -3 3.5 5 7.5

Bond fund 5 4 3.5 3 2

Government fund 4 3.6 3.2 2.8 2.1

Risk fund -12 -7 4.2 9.3 16.7

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

d. Assume that Nicole, with the help of a financial newsletter and some library research, has

been able to assign probabilities to each of the possible interest rates during the next year as

follows:

Interest Rate 5% 6% 7% 8% 9%

Probability 0.1 0.2 0.4 0.2 0.1

Using expected value, determine her best investment decision