Exhibit 14.3 The Following Questions Are Based on the Information Below

question 2

Multiple Choice

Exhibit 14.3
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. 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 payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 70% and an expanding economy at 30%.
-Refer to Exhibit 14.3. What formula should go in cell F5 and copied to F6:F8 of the spreadsheet if the expected regret decision rule is to be used?

• A) =B$5-MAX(B$5:B$8)
• B) =MAX(B$5:B$8)-MAX(B5)
• C) =MAX(B$5:B$8)-MIN(B$5:B$8)
• D) =MAX(B$5:B$8)-B5

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