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aksik [14]
2 years ago
12

Suppose that an investor is considering three alternative strategies: conservative, neutral, or aggressive. If economic conditio

ns get better, then the strategies will return, respectively, 6%, 12%, and 20%. If economic conditions get worse, then the strategies will return, respectively, 4%, 2%, and -8%. If better economic conditions has a probability of only 25%, then using the expected value criterion which alternative would the investor select?
Business
1 answer:
Elan Coil [88]2 years ago
3 0

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%

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Explanation:

Simple interest accounts balances are calculated using the following formula

A = P ( 1 + rt)

where:

A = final account balance

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t = years

Therefore, we can plug in the values provided in this formula and solve for P which would be the amount that Kremena needs to deposit.

1,250 = P ( 1 + (0.045 * 3))

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1,101.32 = P

Finally, we can see that Kremena would need to deposit a total of $1,101.32 to have the amount that she wants after 3 years.

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<h2>using formal writing style</h2>

Explanation:

Informational reports are written for the purpose of internal audience.

A formal writing style consists of the following:

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