The investor has the option to hire a consulting company to narrow down the chances of facing a
strong or weak real estate market. The cost of hiring this consulting company is $5,000. If the
investors hire the consulting company, it provides a report about the state of the future economy,
which shows either economic growth or decline. The consulting company informs the investor that:
• If the future state of the economy is economic growth, then the probabilities of strong and weak
real estate market conditions are 90% and 10%, respectively.
• If the future state of the economy is an economic decline, then the probabilities of strong and
weak real estate market conditions are 30% and 70%, respectively.
The current macroeconomic indicators show a 60% chance of economic growth and a 40% chance of
economic decline.
Draw a decision tree that includes the option of hiring the consulting company and answer the
following:
5- What is the best course of action (best set of decisions)?
6- What is the expected profit for the best course of action?
7- Build a risk profile table