A Business Owner Is Trying to Decide Whether to Buy

question 76

Multiple Choice

A business owner is trying to decide whether to buy, rent, or lease office space and has constructed the following payoff table based on whether business is brisk or slow. $$\begin{array} { l | c r } \text { Alternative } & \text { Brisk } & \text { Slow } \\\hline \text { Buy } & 90 & - 10 \\\text { Rent } & 70 & 40 \\\text { Lease } & 60 & 55\end{array}$$ The maximin strategy is

• A) Buy.
• B) Rent.
• C) Lease.
• D) Brisk.

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Definitions:

Quarterly Compounded Nominal Rate

A nominal interest rate compounded four times a year.

Effective Rate

The annual interest rate that accounts for compounding within the year.

Compounded Annually

The process where interest earned is added to the principal sum once a year, and future interest is earned on the new total.

Compounded Nominal Annual Rate

The rate of interest for one year, without taking inflation into account, which is compounded at specified intervals within that year.