Allen Young has always been proud of the personal investment strategies and has done very well over past many years. He invests primarily in stock market. Over past several months, though, Allen has become very concerned about stock market as good investment. In several cases it would have been better for Allen to have his money in the bank than in market. During next year, Allen should decide whether to invest $10,000 in stock market or in certificate of deposit (CD) at the interest rate of 9%. If market is good, Allen thinks that he could get the 14% return on the money. With the fair market, he expects to get the 8% return. If market is bad, he will most likely get no return at all-in other words, return would be 0%. Allen evaluates that probability of the good market is 0.4, probability of the fair market is 0.4, and probability of bad market is 0.2, and he wants to maximize the long-run average return.
i) Create the decision table for the problem.
ii) Determine the best decision?