kelbear3458 kelbear3458

09-12-2022
Business

Answered

as part of their investment strategy, the carringtons have decided to put $100,000 into stock market investments and also into purchasing precious metals. the performance of the investments depends on the state of the economy in the next year. in an expanding economy, it is expected that their stock market investment will outperform their investment in precious metals, whereas an economic recession will have precisely the opposite effect. suppose the following payoff matrix gives the expected percentage increase or decrease in the value of each investment for each state of the economy.

Answer :

smecloudbird18 smecloudbird18

17-12-2022

The Carringtons can expect a 10% decrease in their stock market investment, which would give them a total value of $90,000.

Payoff Matrix:

Economy | Stock Market | Precious Metals |

| Expanding | +15% | +5% |

| Recession | -10% | +10% |

If the Carringtons decide to invest $100,000 into the stock market and precious metals, they can expect the following payoffs depending on the state of the economy.

In an expanding economy, the Carringtons can expect a 15% increase in their stock market investment, which would give them a total value of $115,000. They can also expect a 5% increase in their precious metals investment, which would give them a total value of $105,000.

In a recession, the Carringtons can expect a 10% decrease in their stock market investment, which would give them a total value of $90,000. They can also expect a 10% increase in their precious metals investment, which would give them a total value of $110,000.

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