## determine how much placeplus should be willing to pay the consulting firm and how ef 561444

The Place Plus real estate development firm in Problem 24 is dissatisfied with the economist’s estimate of the probabilities of future interest rate movement, so it is considering having a financial consulting firm provide a report on future interest rates. The consulting firm is able to cite a track record which shows that 80% of the time when interest rates declined, it had predicted they would, whereas 10% of the time when interest rates declined, the firm had predicted they would remain stable and 10% of the time it had predicted they would increase. The firm has been correct 70% of the time when rates have remained stable, whereas 10% of the time it has incorrectly predicted that rates would decrease, and 20% of the time it has incorrectly predicted that rates would increase. The firm has correctly predicted that interest rates would increase 90% of the time and incorrectly predicted rates would decrease 2% and remain stable 8% of the time. Assuming that the consulting firm could supply an accurate report, determine how much PlacePlus should be willing to pay the consulting firm and how efficient the information will be?