Using the Table Below, Which Is the Recommended Decision Alternative

question 34

Multiple Choice

Using the Table below, which is the recommended decision alternative using the conservative approach? $$\begin{array}{l}\text { Payo ff Table }\\\begin{array} { | c | c | c | } \hline \text { Decision Alternative } & \text { State of Nature 1 } & \text { State of Nature 2 } \\\hline \text { D1 } & 5 & 7 \\\hline \text { D2 } & - 4 & 1 \\\hline \text { D3 } & 1 & - 3 \\\hline \text { D4 } & 10 & 2 \\\hline \text { D5 } & 6 & 4 \\\hline\end{array}\end{array}$$

• A)D1
• B)D5
• C)D2
• D)D3

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Definitions:

Maturity Value

The amount payable to the holder of a financial instrument at its maturity date, including the principal and any accrued interest.

Interest

The cost paid for borrowing money, typically expressed as a percentage of the total amount loaned.

Periodic Inventory

An inventory accounting system where inventory and cost of goods sold are determined at the end of an accounting period based on a physical count.

Defaulted Note

A note or loan for which the borrower has failed to make the agreed-upon payments by the due date.