Use a Payoff Table or Decision Tree

question 1

Multiple Choice

Use a payoff table or decision tree.
-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.
According to the maximin approach, the land owner should

• A) build the active retirement community if interest rates go down.
• B) build the active retirement community.
• C) build townhouses / condominiums if interest rates go down.
• D) build townhouses / condominiums.
• E) build either the active retirement community or townhouses / condominiums.

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