You are considering to investing in one of the following 3 i

You are considering to investing in one of the following 3 investment plans. The payoffs of these investment plans depend on next year\'s stock market (see the table below.) The stock market either levels, or goes down, or goes up. You believe that next year\'s stock market will go down with a probability of 0.45 and level with a probability of 0.14 Calculate the expected value with perfect information (EVWP).

Solution

for plan A

expecte value will be

0.45 * 10,000 + 0.14 * 12,000 + 0.41 * 13,000 = 11510

for plan B

12154 * 0.45 + 0.14* 15000 + 0.41 * 15500 = 13924.3

for plan C

11000 * 0.45 + 0.14 * 11000 + 0.41 * 11500 11205