Exhibit 14.5 The Following Questions Are Based on the Information Below

question 32

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%.
-A square node in a decision tree is called a(n) ____ node.

• A) chance
• B) random
• C) decision
• D) event

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Definitions:

Stock Split

A corporate maneuver where a firm expands its existing shares into a greater quantity to increase the shares' liquidity.

Trading Range

The range within which a security’s price fluctuates over a given period, indicating the highest and lowest prices reached.

Outstanding Shares

The total number of shares of a corporation that are currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.

Flotation Costs

Flotation costs are the expenses incurred by a company in issuing new securities, including underwriting fees, legal fees, and registration fees.