Exhibit 14.5 The Following Questions Are Based on the Information Below

question 30

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%.
-Refer to Exhibit 14.5. How high can P(E) go before the investor's decision, based on expected monetary value criteria, changes?

• A) 0.65
• B) 0.70
• C) 0.75
• D) 0.80

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