Decision Making Essay

1924 WordsAug 26, 20158 Pages
Solution Preview Discussion Questions: 1. Sue Pansky, a retired grade-school teacher, is considering investing in Starting Right. She is very conservative and is a risk avoider. What do you recommend? Since Sue is a risk avoider and is very conservative, I would recommend investing in corporate Bonds. The reason is that her investment of $30,000 is secure to the extent of $20,000 as this amount has been guaranteed by Julia. On the other hand she gets a steady income at the rate of 13% per annum 2. Ray Cahn, who is currently a commodities broker, is also considering an investment, although he believes that there is only an 11% chance of success. What do you recommend? Since, Ray Cahn believes that there is only 11 percent of success, in case of preferred stocks his expected returns is 11% X 4 = 44% plus 50% = 94%. In case of common stocks his expected returns is only 88%. So, Ray Cahn should go in for corporate bonds. This is the choice recommended ... Management Science Prof. John DeNigris June 16, 2014 Activity 2.7 – Group Case Study: Starting Right Starting Right Case Study Discussion Questions 1-6 1. Sue Pansky, a retired elementary school teacher, is considering investing in Starting Right. She is very conservative and is a risk avoider. What do you recommend? Recommendation: There are four alternatives for the investment of $30,000 over a 5 year period. Alternative | Profit (13% return) | Guaranteed Return | Alt. 1 − Corporate Bonds (13%) | $25,273.05 | $20,000 | | Profit Favorable Market | Profit Unfavorable Market | Alt. 2 – Preferred Stock | + $90,000 (400%) | −$15,000 (−50%) | Alt. 3 – Common Stock | + $210,000 (800%) | −$30,000 (−100%) | Alt. 4 – Not Investing (4,5% inf.) | + $7,385.46 | +$7385.46 | Knowing that Sue Pansky is very conservative and a risk avoider she should invest in the corporate bonds. Corporate

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