You Are Evaluating Investment Alternatives for a Ski Resort If You Use the EMV Criterion and You Decide Investment

question 19

Multiple Choice

You are evaluating investment alternatives for a ski resort.There are four alternative investments and their payoffs (in $10,000s) are shown in the following table, depending on the snow conditions for the next season. $\begin{array}{r}\text { Snow Conditions }\\\begin{array}{ccc}\text { Investment } & \text { Good } & \text { Bad } \\d_{1} & 3 & 1 \\d_{2} & 8 & 0 \\d_{3} & 12 & -4 \\d_{4} & 18 & -12\end{array}\end{array}$ If you use the EMV criterion and you decide investment d₂, then the probability that the snow conditions are good is ______.

• A)more than 0.5
• B)more than 0.17
• C)more than 0.25 and less than 0.67
• D)less than 0.17 or more than 0.5
• E)more than 0.17 and less than 0.5

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Definitions:

Written Authorizations

Official documents or agreements that grant permission or rights, often used to approve financial transactions or operations.

Gross Method

An accounting practice where purchases are recorded at their full invoice amount without taking deductions for discounts.

Purchase Discounts

A reduction in the price paid for goods or services if payment is made within a specified period, used as an incentive for early payment.

Cash

Money in the form of currency, including bills and coins, that can be used to pay for goods and services.