Exhibit 14.5 The Following Questions Are Based on the Information Below

question 125

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%.
-Decision models are applicable when

• A) there are multiple alternatives
• B) there are multiple states of nature
• C) there is only one alternative
• D) there is only one state of nature