Don Eleuterio Bonaparte is a rancher who is considering investing money in cbonds of electricity company. He has the option of investing their money in bonds only one of three companies. The performance of these bonds will depend on how the bond market in the future, which may be of appreciation or depreciation in value on the market behaves. The historical information available reflects the following in recent years, including the probability of occurrence of each state:

 State NatureState Nature
Investment DecisionAppreciation in the bond market 0.60Depreciation in the bond market 0.40
Bond A$50,000$26,000
Bond B110,000-35,000
Bond C40,00028,000

1.) Determine a priori which of the three bonds should invest Don Eleuterio in order to maximize their profit.

2.) Determine how much money you could pay Don Eleuterio for perfect information to help you make the decision.

Don Eleuterio has the option of hiring a specialist in the bond market to render him a report on whether anticipates that the bond market will behave negative energy (n) favorably (f) . We will use the following notation to represent the events related to this situation:

A – Appreciation in the bond market.

D – Depreciation in the bond market.

F – Specialist Report reveals a favorable future behavior in the bond market.

N – Report of specialist reveals a negative future behavior in the bond market.

The past history of this specialist reveals the following related odds with the report submitted by the state and nature that have been observed following:

Pr(F|A) = 0.85                        Pr(F|D) = 0.10

Pr(N|A) = 0.15              Pr(N|D) = 0.90

3.) Say what investment strategy that Don Eleuterio should follow according to the report that will render the specialist.

Write a professional-quality full report on their findings duly substantiated summarizing its analysis.

 

Create a diagram of branches in which analysis is illustrated, including odds, post in each case.

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