Perfect information - part 2
Taught by Nick Drape · AI tutor support included
In this lesson, you'll learn how to calculate the value of perfect information in investment decision-making. You'll work through a practical example where George must choose between three investment vehicles—stocks, a mutual fund, or a certificate of deposit—under different market conditions.
This lesson is part of a paid course
Buy the course to unlock every video lesson and the AI Tutor, plus mock exams with feedback on CIMA courses.
Already bought? Sign in
Ask the AI tutor anything about this lesson
It knows every lesson in the course — explanations, clarifications, practice questions.
In this lesson
- 0:00 Investment options and risk profiles
- 1:22 Calculating expected values without perfect information
- 4:10 Decision-making with perfect information
- 6:18 Value of perfect information calculation
About this lesson
By comparing the expected value of his best choice without perfect information against the expected value if he knew market conditions in advance, you'll see exactly how to quantify what that information is worth. This technique is essential for FM and AFM papers, where decision-making under uncertainty appears regularly. The lesson walks you through calculating expected values for each investment option, identifying the risk-neutral choice, then determining the optimal strategy if perfect information were available. The difference between these two expected values is the value of perfect information—in this case, $350. You'll see why this concept matters in real financial analysis: it helps you understand the maximum you should pay for better forecasting or market intelligence. The step-by-step approach shown here applies to any scenario where you're weighing investment options against uncertain outcomes, making it a practical tool for both exam success and professional decision-making.
Duration: 7m
Transcript
Every lesson comes with a full searchable transcript - included with the course.
Get the P2 Objective Test course
All 121 video lessons, timed mock exams marked instantly with an explanation for every question, an AI Tutor in every lesson and lifetime access.
Already bought? Sign in