Exhibit 14.9 The Following Questions Are Based on the Information Below

question 109

Essay

Exhibit 14.9
The following questions are based on the information below.
An investor is considering 4 investments, W, X, Y, and Z. 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 investment decision problem.
-An investor is considering 2 investments, A, B, which can be purchased now for $10. There is a 40% chance that investment A will grow rapidly in value and a 60% chance that it will grow slowly. If A grows rapidly the investor can cash it in for $80 or trade it for investment C which has a 25% chance of growing to $100 and a 75% chance of reaching $80. If A grows slowly it is sold for $50. There is a 70% chance that investment B will grow rapidly in value and a 30% chance that it will grow slowly. If B grows rapidly the investor can cash it in for $100 or trade it for investment D which has a 20% chance of growing to $95 and an 80% chance of reaching $80. If B grows slowly it is sold for $45. Draw the decision tree for this problem.

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Definitions:

Slow Drip

A method typically used in medical treatments where fluids, such as medication or nutrients, are administered intravenously into the body at a slow rate.

Right Route

The correct or most effective pathway or method of achieving a goal or destination.

Douche

Vaginal irrigation, which can be used to administer vaginal medication in liquid form.

Diluent

A liquid used to dissolve and dilute another substance, such as a drug.