Ellen is currently deciding how to invest $100,000. One option would be to invest in Golden Oaks Nursing Homes. In a good economy, she would receive a 20% return on her money. In a fair economy, she would get a 9% return and a 0% return in a poor economy. Another option would be the We're Your Friends loan company. There, she could get a 4% return in a good market, an 11% return in a fair market, and a 15% return in a poor market. A final option would be to leave the money invested in CD's which would return 9% over the same time period. Suppose she believed the probability of a good economy to be 20% and the probability of a poor market to be 30%, what is her expected value of perfect information (EVPI)?
Ellen is currently deciding how to invest $100,000. One option would be to invest in Golden Oaks Nursing Homes. In a good economy, she would receive a 20% return on her money. In a fair economy, she would get a 9% return and a 0% return in a poor economy. Another option would be the We're Your Friends loan company. There, she could get a 4% return in a good market, an 11% return in a fair market, and a 15% return in a poor market. A final option would be to leave the money invested in CD's which would return 9% over the same time period. Suppose she believed the probability of a good economy to be 20% and the probability of a poor market to be 30%, what is her expected value of perfect information (EVPI)?
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter19: The Basic Tools Of Finance
Section: Chapter Questions
Problem 1CQQ
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Question
![Ellen is currently deciding how to invest $100,000.
One option would be to invest in Golden Oaks
Nursing Homes. In a good economy, she would
receive a 20% return on her money. In a fair
economy, she would get a 9% return and a 0%
return in a poor economy. Another option would be
the We're Your Friends loan company. There, she
could get a 4% return in a good market, an 11%
return in a fair market, and a 15% return in a poor
market. A final option would be to leave the money
invested in CD's which would return 9% over the
same time period. Suppose she believed the
probability of a good economy to be 20% and the
probability of a poor market to be 30%, what is her
expected value of perfect information (EVPI)?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ffcde61d9-fd75-4191-b0f5-35d254ec5020%2F3ab70d79-6057-45d4-b517-0f214eb2e07b%2F00ig9g_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Ellen is currently deciding how to invest $100,000.
One option would be to invest in Golden Oaks
Nursing Homes. In a good economy, she would
receive a 20% return on her money. In a fair
economy, she would get a 9% return and a 0%
return in a poor economy. Another option would be
the We're Your Friends loan company. There, she
could get a 4% return in a good market, an 11%
return in a fair market, and a 15% return in a poor
market. A final option would be to leave the money
invested in CD's which would return 9% over the
same time period. Suppose she believed the
probability of a good economy to be 20% and the
probability of a poor market to be 30%, what is her
expected value of perfect information (EVPI)?
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