Texts: Cost financial
kso to financial
advices.
QUESTION 4
International city trust invests in corporate stocks, gold stocks, and construction loans. If the market expands, they will make a profit of R500,000 with corporate stock, R300,000 with gold stocks, and R350,000 with construction loans. If the market retracts, they will lose R200,000 with corporate stock, R100,000 with gold stock, and R150,000 with construction loans. They believe the probability for the market to expand is 0.6. It is possible to first get a report from a financial advisor. The probability of a favorable report is 0.7. If the report is favorable, the probability that the market will expand is 0.8, and if the report is unfavorable, the probability that the market will expand is 0.3.
1. Draw a decision tree
2. What is the optimal decision to make?
(20)
(2)
[22]