Which of the Following Best Describes a Decision Tree

question 4

Multiple Choice

Which of the following best describes a decision tree?

• A) A decision tree is a useful device for calculating probabilities.
• B) A decision tree uses branches to represent both acts and states of nature.
• C) The payoffs are shown at the end of branches of a decision tree.
• D) All of these choices are correct.

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Definitions:

Loss On Redemption

The financial loss experienced when a debt security is redeemed before its maturity date for more than its par value.

Carrying Value

The book value of an asset on a company’s balance sheet, calculated as the original cost minus accumulated depreciation.

Bonds

Long-term debt securities issued by corporations or government entities that pay periodic interest until maturity, at which point the face value is repaid.

Bond Premium

The extra amount by which a bond's market price exceeds its face value.