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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)?

Brief Principles of Macroeconomics (MindTap Course List)
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter9: The Basic Tools Of Finance
Section: Chapter Questions
Problem 1CQQ
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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)?
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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