Kathleen Simpkins has 5100.000 to invest and is considering 3 different investment options. common stocks, mutual funds or bonds for the next star.
She realizes that the return on her investment is likely to be affected by the trend in interest rates during the investment penal. Kathleen has created the following table to show her best estimates of her return under three possible interest rate events.
|
|
Interest
Rates
Decline
|
Interest
Rates
Increase
|
|
Common Stocks
|
20 000
|
-5,000
|
|
Mutual Funds
|
13 000
|
1.000
|
|
Bonds
|
5,000
|
6,000
|
a. What Decision should Kathleen make if she uses the Maximin decision criterion?
b. What decision should Kathleen make if she uses the Equal likelihood decision criterion?
c. What decision should Kathleen make if she used the criterion of realism with a coefficient of optimism of .7?
d. What decision should Kathleen make if she used the Maximax likelihood criterion?