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You are hired as consultants to Doha Investments to advise them on the various investment opportunities and their returns (in $10,000), given the interest rate changes that the United Arad Emirates would make, if Doha Investments invest in some opportunities in Africa. The table presents a summary of the profits to be made from each investment opportunity.
Investment Opportunity Interest Rates (States of Nature)
5% 6% 7% 8% 9%
Money Market 200 310 400 430 500
Stock Growth Fund -300 -200 250 400 600
Bond Fund 600 500 300 300 200
Government Bond 400 360 320 300 200
Risk Fund -900 -450 120 830 1470
Savings Bond 300 300 320 340 350
Determine the best investment option, using the following decision criteria.
c) Minmax regret
d) Hurwicz (α = 0.35)
e) Equal likelihood(Laplace)
f) If the probability of making 5% return is 0.2, 6% is 0.2, 7% is 0.1, 8% is 0.3 and 9% is 0.2 Using expected monetary values, what option should Doha Investment choose and what is that optimal expected value?
g) What is the most Doha Investments would be willing to pay for additional information? Use Minimum Expected Regret (Minimum EOL)
h) Present your findings in a report to the Chairman of the Finance Committee of the Board of Directors. Be sure to include your recommended investment opportunity along with sound supporting evidence.