Exhibit 14.5 The Following Questions Are Based on the Information Below

question 98

Multiple Choice

Exhibit 14.5
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C, D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following decision tree has been developed for the problem. The investor has estimated the probability of a declining economy at 40% and an expanding economy at 60%.
-The decision with the smallest expected opportunity loss (EOL) will also have the

• A) smallest EMV.
• B) largest EMV.
• C) smallest regret.
• D) largest regret.

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Definitions:

Contingency Table

A tabular display of data that shows the frequency distribution of variables to study the relationship between them.

Blood Type

A classification of human blood based on the presence or absence of antibodies and inherited antigenic substances on the surface of red blood cells.

Probability Assignment

An academic or educational task involving the calculation or analysis of probabilities concerning certain events or scenarios.

Legitimate

Something that is lawful, justified, and recognized as valid or conforming to established rules and standards.