Answer:
The answer is: Following the expected value criterion the investor should choose indistinctively between the conservative or neutral alternatives.
Explanation:
The formula we use to calculate the expected return value of the different alternatives is:
ERV = ∑ (expected return x probability of occurrence)
The conservative alternative has an expected return value of of 4.5%
ERV Conservative = (6% x 25%) + (4% x 75%) = 4.5%
The neutral alternative also has an expected return value of of 4.5%
ERV Neutral = (12% x 25%) + (4% x 75%) = 4.5%
The aggressive alternative has an expected return value of of -1%
ERV Aggressive = (20% x 25%) + (-8% x 75%) = -1%
B - The quantity of milk supplied will decrease
Answer:
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