TABLE 17-6
a Student Wanted to Find Out the Optimal

question 76

True/False

TABLE 17-6
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the average amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | c | c | c | } \hline & \text { 16 hours } & 8 \text { hours } & \text { 4 hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$
-Referring to Table 17-6, the optimal strategy using the maximin criterion is to study 8 hours per week on average for the exam.

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Definitions:

Monthly Compounding

The process of computing interest on an amount where the calculated interest is added to the principal at the end of each month for the purpose of calculating future interest.

Nominal Rate

The stated interest rate of an investment or loan, without taking into account inflation or compounding of interest.

Semi-Annual Compounding

A method of calculating interest where the interest is added to the principal balance twice a year, leading to compound interest growth.

Nominal Rate

The advertised or stated interest rate on a loan or investment, not accounting for compounding or inflation effects.