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Evelyn Parkhill is considering three possible ways to invest the $200,000

she has just inherited.


1. Soe o! her !riends are considering !inancing a cobined "aundroat,
video#gae arcade, and pi$$eria, where the young singles in the area can
eet and play while doing their laundry. %his venture is highly risky
and could result in either a ajor loss or a substantial gain within a
year. Evelyn estiates that with probability 0.&, she will lose all o! her
oney. 'owever, with probability 0.(, she will ake a $200,000 pro!it.
2. She can invest in soe new apartents that are being built in town.
)ithin 1 year, this !airly conservative project will produce a pro!it o! at
least $10,000, but it ight yield $1*,000, $20,000, $2*,000, or possibly
even $+0,000 with 0.20, 0.+0, 0.2*, 0.20 and 0.0* probabilities
respectively.
+. She can invest in soe governent securities that have a current yield o!
,.2* percent.
a. -onstruct a decision tree to help Evelyn decide how to invest her
oney.
b. )hich investent will a.ii$e her e.pected 1#year pro!it/
c. 'ow high would the yield on the governent bonds have to be
be!ore she would decide to invest in the/
d. 'ow uch would she be willing to pay !or per!ect in!oration
about the success o! the "aundroat/
e. 'ow uch would she be willing to pay !or per!ect in!oration
about the success o! the apartents/