Consider the Following to Answer the Question(s) Below

question 12

Multiple Choice

Consider the following to answer the question(s) below:
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate

-According to the maximax approach, the investor would place his $10,000 in

• A) stocks
• B) bonds
• C) mutual funds
• D) stocks if there is economic growth
• E) bonds if there is no change in economic climate

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Definitions:

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated by adding purchases to beginning inventory and then subtracting the cost of goods sold.

Gross Profit

The difference between sales and the cost of goods sold before deducting overhead, payroll, taxation, and interest payments.

FIFO Inventory

Stands for "First-In, First-Out", an inventory valuation method where the oldest inventory items are recorded as sold first.

Perpetual Inventory System

This inventory accounting technique instantly logs the acquisition or sale of inventory by utilizing computerized point-of-sale systems along with enterprise asset management software.