A person wants to invest in one of three alternative investment plans: stocks, bonds or a savings account. It is assumed that the person wishes to invest all of the funds in one plan. The conditional Pay-off of the investments are based on three potential economic conditions: accelerated, normal or slow growth. The Pay-off matrix is given below: Alternative Investment Economic Conditions Accelerated Growth Normal Growth Slow Growth 6,500 6,000 5,000 4,600 1,000 Stock 10,600 Bonds 8,000 Saving 5,000 5,000 Determine the best investment plan using each of the following criteria: (i) Laplace (ii) Maximin (iii) Miximax (iv) Hurwicz with coefficient of optimism a = 0.6.
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- Scenario Your corporation has just approved an 8-year expansion plan to grow its market share. The plan requires an influx of cash in each of the 8 years. Management wants to develop a financial plan to ensure the cash needed for the expansion will be available at the beginning of each of the 8 years. The corporation has the following investment options: Security Price per unit Return Rate (%) Years to Maturity 1 $1,200 10.255 5 2 $1,000 6.7550 6 3 $1,175 12.110 7 Savings Account 5.500 Each unit of security 1, 2, and 3 guarantees to pay $1,000 at maturity. Investments in these securities must take place only at the beginning of year 1 and will be held until maturity. Any funds not invested in securities will be invested in a savings account that pays the annual interest rates noted above. The following table summarizes the cash needs for the expansion plan for each of the 8 years: Year 1 = $250,000 Year 5 = $295,000…Conoly Co. has identified an investment projectwith the following cash flows. If the discount rate is 10 percent, what is the present valueof these cash flows? What is the present value at 18 percent? At 24 percent?Year Cash Flow1 $ 9602 8403 9354 1,350a business owner is planning to strategies his company's growth, he can either buy , rent, or lease a new factory depending on how the business is doing. He was given the following payoff table based on whether the business is doing good or business is slow. Aletnative Business Doing Goood Business Slow Buy 90 -10 Rent 70 40 Lease 60 55 The probability of business doing good is 0.7 and the probability of slow business is 0.3. Using Lapace method, the strategy is: A. Do nothing B. Lease C. Rent D. Buy