Find the Expected Value of Perfect Information

question 13

Multiple Choice

Find the expected value of perfect information.
-A land owner is considering a community development project in the southeastern
u.S. He is faced with two alternatives: (1) build detached homes in a planned retirement
Community or (2) build a smaller townhouse / condominium complex. Mortgage interest
Rates will affect his outcomes and the payoff (in $ millions) table is shown below. If the
Probabilities for future mortgage interest rates going up, staying about the same, and
Going down are .35, .50 and .15, respectively, the expected value of perfect information is

• A) $2.5 million
• B) $3.625 million
• C) $2.75 million
• D) $875,000
• E) None of the above.

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