Allen Young has always been proud of his personal investment strategies and has done very well over… 1 answer below »

Allen Young has always been proud of his personal investment strategies and has done very well over the past several years. He invests primarily in the stock market. Over the past several months, however, Allen has become very concerned about the stock market as a good investment. In some cases it would have been better for Allen to have his money in a bank than in the market. During the next year, Allen must decide whether to investin the stock market or in a certificate of deposit (CD) at an interest rate ofIf the market is good, Allen believes that he could get a return on his money. With a fair market, he expects to get areturn. If the market is bad, he will most likely get no return at all—in other words, the return would be Allen estimates that the probability of a good market is, the probability of a fair market is, and the probability of a bad market is, and he wishes to maximize his long-run average return.

 

(a) Develop a decision table for this problem.

 

(b) What is the best decision?

 

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