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A financial analysis portfolio considers a decision whereby you part with Sh. 10 Million in
one of two or both investment alternatives. You have decided to have three decisions:
D1: Invest all the Sh. 10 M in investment portfolio A.
D2: Invest Sh. 5 M each in investment portfolios A and B.
D3: Invest Sh. 10 M in investment portfolio B.
You are further informed that annual rate of return for alternative A can either be -0.05 or
0.10 and alternative B would either be -0.10 or 0.20. However, it is not known with
certainty which investment alternative will be associated with which rate of return.
Required:
Choose the investment that will maximize the returns using the decision criteria:
(i) Maximax rule
(ii) Maximin rule
(iii) Minimax regret ruleThere is no point in typing out a full question and expecting to be provided with a full answer.
You must have an answer in the same book in which you found the question, so ask about whatever it is in the answer that you are not clear about and then I will explain.
In addition, everything needed to be able to answer this question is explained in my free lectures. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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