Ann Tyler has come into an inheritance from her grandparents. She is
attempting to decide among...

Question

Ann Tyler has come into an inheritance from her grandparents. She is 
attempting to decide among several investment alternatives. The return 
after 1 year is primarily dependent on the interest rate during the next
 year. The rate is currently 7%, and Ann anticipates that it will stay 
the same or go up or down by at most two points. The various investment 
alternatives plus their returns ($10,000s), given the interest rate 
changes, are shown in the following table:
Interest Rate
Investment 5% 6% 7% 8% 9%
Money market fund XXXXXXXXXX
Stock growth fund XXXXXXXXXX
Bond fund XXXXXXXXXX
Government fund XXXXXXXXXX
Risk fund XXXXXXXXXX7
Savings bonds XXXXXXXXXX
(a=.4)
PROBLEMS 575
Determine the best investment, using the following decision criteria.
a. Maximax
b. Maximin
c. Equal likelihood

Robert · Accepted Answer

Opportunistic Loss Table 
Scenario Interest Rates 
Money 
Market 
Fund 
Stock 
Growth 
Fund 
Bond 
Fund 
Governement 
Fund 
Risk 
Fund 
Savings 
Fund 
1 5% 4 9 0 2 15 3 
2 6% 1.9 7 0 1.4 9.5 2 
3 7% 0 1.5 1 0.8 2.8 0.8 
4 8% 4 4.3 5.3 5.3 0 4.9 
5 9% 9.7 8.7 12.7 12.7 0 11.2
Maximax heuristic: 
Selecting the best possible return from each of the investment options and the then taking the best 
(largest) of these. 
The largest returns are money market fund, stock growth fund, bond fund, government fund, risk fund and 
savings fund are 5, 6, 6, 4, 14.7 and 3.5. Since the largest of those is 14.7 Ann Tyles will invest in the 
Risk Fund 
Maximin heuristic:

Ann Tyler has come into an inheritance from her grandparents. She is attempting to decide among several investment alternatives. The return after 1 year is primarily dependent on the interest rate...

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