Statistic problem

An investor has a certain amount of money available to invest now. Three
alternative portfolio selections are available. The estimated profits of
each portfolio under each economic condition are indicated in below
table:

Portfolio Selection



Event A B
C

Economy decline $ 500 -$2,000 -$7,000

No Change 1,000 2,000 - 1,000

Economy Expand 2,000 5,000 20,000

On the basic of his own past experience, the investor assigns the
following probabilities to each economic condition:



P (economy decline) = .30

P (no change) = .50

P (economy expands) =.20

Determine the best portfolio selection for the investor according to
expected monetary value criterion. Discuss

Compute the standard deviation for each possible portfolio selection.

Compute the expected opportunity loss(EOL) for portfolio A,B, and C

Explain the meaning of the expected value of perfect information (EVPI)
in this problem

Compute the coefficient of variation for portfolios A,B, and C

Compute the return to risk ratio for portfolios A,B, and C

On the basis of results of (e) and (f), which would you choose portfolio
A, B, and C? Why?

Compare the result of (a) and (g), and explain any differences

Suppose the probabilities of the different economic condition were as
follows:

(1) .1, .6, and .3 (3) .4, .4 and, .2

(2) .1, .3, and .6 (4) .6, .3, and, .1



Do (a) – (g) with each of these sets of probabilities and compare the
results with

those obtained in (h). Discuss