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ACC544 Decision Support Tools

tag 0 Download 7 Pages / 1,514 Words tag 31-12-2020
  • Course Code: ACC544
  • University: Charles Sturt University
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  • Country: Australia

Question:

You may follow the methods shown in the mp4 on Decision Analysis for a way to do part (b) of this question if you wish.

(a) Discuss how a utility function can be assessed. What is a standard gamble and how is it used in determining utility values?

(b) Alan Barnes invests primarily in the share market. Recently he has become concerned about the share market as a good investment. During the next year he must decide whether to invest $10,000 in the share market or in a government bond at an interest rate of 9%.

Alan expects the share market to be good, fair or bad, giving a return of 14%, 8% or 0% respectively on his money.

1.Develop a decision matrix showing the two possible strategies, the three states of the share market and the monetary gains or losses under the six possible action-state scenarios.

Answer the following questions. Each answer must be supported with appropriate calculations and/or a table of figures, and you must state for questions 2 to 5 which alternative would be selected.

  1. Which alternative would an optimist choose?
  2. Which alternative would a pessimist choose?
  3. Which alternative is indicated by the criterion of regret?
  4. Assuming probability of a good market = 0.4, a fair market = 0.4 and a bad market = 0.2, using expected monetary values what is the optimum action?
  5. What is the expected value of perfect information?
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