Deck 17: Decision Making

Question 1

A company that manufactures designer jeans is contemplating whether to increase its advertising budget by $1 million for next year.If the expanded advertising campaign is successful,the company expects sales to increase by $1.6 million next year.If the advertising campaign fails,the company expects sales to increase by only $400,000 next year.If the advertising budget is not increased,the company expects sales to increase by $200,000.

-Identify the actions in this decision-making problem.

A) The increase in sales dollars next year.
B) Two choices: (1) increase the budget or (2) do not increase the budget.
C) Four consequences resulting from the Increase/Do Not Increase and Successful/Not Successful combinations.
D) Two possibilities: (1) campaign is successful or (2) campaign is not successful.

Answer 1

Two choices: (1) increase the budget or (2) do not increase the budget.

Question 2

A medical doctor is involved in a $1 million malpractice suit.He can either settle out of court for $250,000 or go to court.If he goes to court and loses,he must pay $825,000 plus $175,000 in court costs.If he wins in court the plaintiffs pay the court costs.

-Identify the actions of this decision-making problem.

A) Two possibilities: (1) win the case in court or (2) lose the case in court.
B) Four consequences resulting from Go/Settle and Win/Lose combinations.
C) The amount of money paid by the doctor.
D) Two choices: (1) go to court or (2) settle out of court.

Answer 2

Two choices: (1) go to court or (2) settle out of court.

Question 3

Which of the following is NOT a decision-making criterion?

A) Minimising the expected opportunity loss of an action
B) Maximising the expected monetary value of an action
C) Maximising the return-to-risk ratio
D) Minimising expected profit under certainty

Answer 3

D

Question 4

Instruction 17-1
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-1,what is the opportunity loss of spending 4 hours per week on average studying for the exam when the exam turns out to be easy?

Question 5

A medical doctor is involved in a $1 million malpractice suit.He can either settle out of court for $250,000 or go to court.If he goes to court and loses,he must pay $825,000 plus $175,000 in court costs.If he wins in court the plaintiffs pay the court costs

-Identify the events of this decision-making problem.

A) The amount of money paid by the doctor.
B) Two possibilities: (1) win the case in court or (2) lose the case in court.
C) Two choices: (1) go to court or (2) settle out of court.
D) Four consequences resulting from Go/Settle and Win/Lose combinations.

Question 6

Opportunity loss is the difference between the lowest profit for an event and the actual profit obtained for an action taken.

Question 7

Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.

- The payoff for buying 200 dozen roses and selling 100 dozen roses at the full price is _______.

A) $2,000
B) $500
C) -$500
D) $1,500

Question 8

A medical doctor is involved in a $1 million malpractice suit.He can either settle out of court for $250,000 or go to court.If he goes to court and loses,he must pay $825,000 plus $175,000 in court costs.

-If he wins in court the plaintiffs pay the court costs.Identify the outcomes of this decision-making problem.

A) The amount of money paid by the doctor.
B) Two choices: (1) go to court or (2) settle out of court.
C) Four consequences resulting from Go/Settle and Win/Lose combinations.
D) Two possibilities: (1) win the case in court or (2) lose the case in court.

Question 9

Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.

- The payoff for buying and selling 400 dozen roses at the full price is ________.

A) $12,000
B) $6,000
C) $4,000
D) It cannot be determined.

Question 10

A company that manufactures designer jeans is contemplating whether to increase its advertising budget by $1 million for next year.If the expanded advertising campaign is successful,the company expects sales to increase by $1.6 million next year.If the advertising campaign fails,the company expects sales to increase by only $400,000 next year.If the advertising budget is not increased,the company expects sales to increase by $200,000.

-Identify the outcomes in this decision-making problem.

A) Four consequences resulting from the Increase/Do Not Increase and Successful/Not Successful combinations.
B) Two choices: (1) increase the budget or (2) do not increase the budget.
C) The increase in sales dollars next year.
D) Two possibilities: (1) campaign is successful or (2) campaign is not successful.

Question 11

Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.

- The number of events for the payoff table is ________.

A) 3
B) 4
C) 2
D) It cannot be determined.

Question 12

A company that manufactures designer jeans is contemplating whether to increase its advertising budget by $1 million for next year.If the expanded advertising campaign is successful,the company expects sales to increase by $1.6 million next year.If the advertising campaign fails,the company expects sales to increase by only $400,000 next year.If the advertising budget is not increased,the company expects sales to increase by $200,000.

-Identify the events in this decision-making problem.

A) Two choices: (1) increase the budget or (2) do not increase the budget.
B) Two possibilities: (1) campaign is successful or (2) campaign is not successful.
C) Four consequences resulting from the Increase/Do Not Increase and Successful/Not Successful combinations.
D) The increase in sales dollars next year.

Question 13

Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.

-The opportunity loss for buying 200 dozen roses and selling 100 dozen roses at the full price is _______.

A) -$500
B) -$2,000
C) $500
D) $1,000

Question 14

Instruction 17-1
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-1,how many possible events are there?

Question 15

A tabular presentation that shows the outcome for each decision alternative under the various states of the events is called ________

A) a payoff table
B) a decision tree
C) a decision matrix
D) a payback period matrix

Question 16

Instruction 17-1
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-1,what is the opportunity loss of spending 16 hours per week on average studying for the exam when the exam turns out to be easy?

Question 17

Instruction 17-1
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-1,how many possible courses of action are there?

Question 18

Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.

-The number of alternatives for the payoff table is _______.

A) 2
B) 4
C) 3
D) It cannot be determined.

Question 19

Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.

- The opportunity loss for buying 400 dozen roses and selling 200 dozen roses at the full price is _______.

A) -$2,000
B) $1,00
C) $0
D) $500

Question 20

A company that manufactures designer jeans is contemplating whether to increase its advertising budget by $1 million for next year.If the expanded advertising campaign is successful,the company expects sales to increase by $1.6 million next year.If the advertising campaign fails,the company expects sales to increase by only $400,000 next year.If the advertising budget is not increased,the company expects sales to increase by $200,000.

-Identify the payoff in this decision-making problem.

A) Four consequences resulting from the Increase/Do Not Increase and Successful/Not Successful combinations.
B) Two possibilities: (1) campaign is successful or (2) campaign is not successful.
C) Two choices: (1) increase the budget or (2) do not increase the budget.
D) The increase in sales dollars next year.

Question 21

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,if the probability of S1 is 0.5,then the expected monetary value (EMV)for A1 is ________.

A) 4
B) 8
C) 6.5
D) 3

Question 22

Instruction 17-2
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-2,what is the expected value of perfect information?

Question 23

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,the opportunity loss for A2 when S1 occurs is________.

A) 14
B) 0
C) 5
D) -2

Question 24

Instruction 17-1
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-1,what is the opportunity loss of spending 8 hours per week on average studying for the exam when the exam turns out to be difficult?

Question 25

Instruction 17-2
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-2,what is the expected profit under certainty?

Question 26

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,the opportunity loss for A3 when S2 occurs is _______.

A) 5
B) 6
C) 4
D) 0

Question 27

Instruction 17-2
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-2,what is the expected opportunity loss of spending 8 hours per week on average studying for the exam?

Question 28

To calculate expected profit under certainty,you need to have perfect information about which event will occur.

Question 29

Instruction 17-2
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-2,what is the expected monetary value of spending 8 hours per week on average studying for the exam?

Question 30

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,if the probability of S1 is 0.5,then the expected opportunity loss (EOL)for A1 is _______.

A) 4.5
B) 3
C) 8
D) 7

Question 31

Instruction 17-2
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-2,what is the expected monetary value of spending 16 hours per week on average studying for the exam?

Question 32

Removal of uncertainty from a decision-making problem leads to a case referred to as perfect information.

Question 33

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,if the probability of S1 is 0.4,then the probability of S2 is _______.

A) 1.0
B) 0.6
C) 0.4
D) 0.5

Question 34

Instruction 17-2
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-2,if the probability of S1 is 0.5,then the expected opportunity loss (EOL)for A3 is _______.

A) 3
B) 4.5
C) 8
D) 7

Question 35

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,if the probability of S1 is 0.2 and S2 is 0.8,then the expected monetary value of A1 is _______.

A) 2.4
B) 16
C) 8
D) 5.6

Question 36

Instruction 17-2
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-2,what is the maximum amount that the student is willing to pay to obtain perfect information?

Question 37

Instruction 17-2
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-2,what is the return-to-risk ratio of spending 8 hours per week on average studying for the exam?

Question 38

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,if the probability of S1 is 0.2 and S2 is 0.8,then the expected opportunity loss (EOL)for A1 is _______.

A) 4.8
B) 0
C) 5.6
D) 1.2

Question 39

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,if the probability of S1 is 0.5,then the expected monetary value (EMV)for A2 is________.

A) 3
B) 4
C) 8
D) 6.5

Question 40

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,if the probability of S1 is 0.2,what is the optimal decision using expected opportunity lost (EOL)?

A) A3
B) A1
C) A2
D) It cannot be determined.

Question 41

Instruction 17-4
The following information is from two investment opportunities.
$$\begin{array} { l c c } & A & B\\\text { Expectedmonetary } & \$ 900 & \$ 600 \\\text { value }\\\text { standarddeviation } & 100 & 50 \end{array}$$

-Referring to Instruction 17-4,which investment has the optimal return to risk ratio (RTRR)?

A) Investment A
B) Investment B
C) The investments are equal.
D) It cannot be determined.

Question 42

Instruction 17-6
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-6,the optimal strategy using the coefficient of variation criterion is to study 8 hours per week on average for the exam.

Question 43

Instruction 17-4
The following information is from two investment opportunities.
$$\begin{array} { l c c } & A & B\\\text { Expectedmonetary } & \$ 900 & \$ 600 \\\text { value }\\\text { standarddeviation } & 100 & 50 \end{array}$$

-Referring to Instruction 17-4,what is the return to risk ratio (RTRR)for Investment B?

A) 24
B) 12
C) 8
D) 10

Question 44

Instruction 17-6
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-6,the optimal strategy using the expected monetary value criterion is to study 8 hours per week on average for the exam.

Question 45

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,if the probability of S1 is 0.5,then the return to risk (RTRR)ratio for A3 is _______.

A) 0.667
B) 2
C) 1.5
D) 4.333

Question 46

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,if the probability of S1 is 0.5,then the coefficient of variation for A1 is _______.

A) 1.5
B) 0.231
C) 0.5
D) 2

Question 47

Instruction 17-4
The following information is from two investment opportunities.
$$\begin{array} { l c c } & A & B\\\text { Expectedmonetary } & \$ 900 & \$ 600 \\\text { value }\\\text { standarddeviation } & 100 & 50 \end{array}$$

-Referring to Instruction 17-4,which investment has the optimal coefficient of variation?

A) Investment A
B) Investment B
C) The investments are equal.
D) It cannot be determined.

Question 48

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,if the probability of S1 is 0.5,then the expected value of perfect information (EVPI)for the payoff table is _______.

A) -3
B) 8
C) 3
D) 11

Question 49

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,if the probability of S1 is 0.5,then the coefficient of variation for A2 is _______.

A) 0.231
B) 2
C) 1.5
D) 0.5

Question 50

Instruction 17-5
A stock portfolio has the following returns under the market conditions listed below.
$$\begin{array} { l l l } \text { Market Condition } & \text { Probability } & \text { Return } \\\text { Bull } & 0.4 & \$ 200 \\\text { Stable } & 0.3 & \$ 100 \\\text { Bear } & 0.3 & \$ 100\end{array}$$

-Referring to Instruction 17-5,what is the expected monetary value (EMV)?

A) $90
B) $80
C) $180
D) $130

Question 51

Instruction 17-5
A stock portfolio has the following returns under the market conditions listed below.
$$\begin{array} { l l l } \text { Market Condition } & \text { Probability } & \text { Return } \\\text { Bull } & 0.4 & \$ 200 \\\text { Stable } & 0.3 & \$ 100 \\\text { Bear } & 0.3 & \$ 100\end{array}$$

-Referring to Instruction 17-5,what is the standard deviation?

A) 4,890
B) 124.9
C) 4,840
D) 69.6

Question 52

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,if the probability of S1 is 0.5,then the expected profit under certainty (EPU)is _______.

A) 8
B) 5
C) 3
D) 11

Question 53

Instruction 17-6
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-6,the optimal strategy using the return-to-risk ratio (RTRR)criterion is to study 8 hours per week on average for the exam.

Question 54

Instruction 17-6
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-7,the optimal strategy using the expected opportunity loss (EOL)criterion is to study 8 hours per week on average for the exam.

Question 55

Instruction 17-6
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-6,the optimal strategy using the expected monetary value criterion is to study 16 hours per week on average for the exam.

Question 56

Instruction 17-5
A stock portfolio has the following returns under the market conditions listed below.
$$\begin{array} { l l l } \text { Market Condition } & \text { Probability } & \text { Return } \\\text { Bull } & 0.4 & \$ 200 \\\text { Stable } & 0.3 & \$ 100 \\\text { Bear } & 0.3 & \$ 100\end{array}$$

-Referring to Instruction 17-5,what is the return to risk ratio (RTRR)?

A) 2.00
B) 0.64
C) 1.08
D) 1.18

Question 57

Instruction 17-4
The following information is from two investment opportunities.
$$\begin{array} { l c c } & A & B\\\text { Expectedmonetary } & \$ 900 & \$ 600 \\\text { value }\\\text { standarddeviation } & 100 & 50 \end{array}$$

-Referring to Instruction 17-4,what is the coefficient of variation for investment A?

A) 5.0%
B) 11.1%
C) 8.3%
D) 90.0%

Question 58

Instruction 17-5
A stock portfolio has the following returns under the market conditions listed below.
$$\begin{array} { l l l } \text { Market Condition } & \text { Probability } & \text { Return } \\\text { Bull } & 0.4 & \$ 200 \\\text { Stable } & 0.3 & \$ 100 \\\text { Bear } & 0.3 & \$ 100\end{array}$$

-Referring to Instruction 17-5,what is the coefficient of variation?

A) 156.1%
B) 88.8%
C) 100%
D) 90.3%

Question 59

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,if the probability of S1 is 0.5,what is the optimal alternative using expected monetary value (EMV)?

A) A1
B) A2
C) A3
D) It cannot be determined.

Question 60

Instruction 17-3
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$$\begin{array} { c c c c } \text { States } & A 1 & A 2 & A B \\\hline 1 & 12 & - 2 & 8 \\2 & 4 & 10 & 5\end{array}$$ where:
S1 is event 1
A1 is action alternative 1
S2 is event 2
A2 is action alternative 2
A3 is action alternative 3

-Referring to Instruction 17-3,if the probability of S1 is 0.5,then the return to risk ratio (RTRR)for A1 is ________.

A) 2
B) 4.333
C) 1.5
D) 0.667

Question 61

Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.

-Given 0.2,0.4,and 0.4 are the probabilities for the sale of 100,200,or 400 dozen roses,respectively,then the expected opportunity loss (EOL)for buying 200 dozen roses is________.

A) $1,600
B) $1,500
C) $700
D) $900

Question 62

Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.

-Given 0.2,0.4,and 0.4 are the probabilities for the sale of 100,200,or 400 dozen roses,respectively,then the expected value of perfect information (EVPI)for buying roses is _______.

A) $700
B) $1,900
C) $2,600
D) $1,500

Question 63

Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.

-Given 0.2,0.4,and 0.4 are the probabilities for the sale of 100,200,or 400 dozen roses,respectively,then the expected monetary value (EMV)for buying 200 dozen roses is _______.

A) $2,500
B) $1,000
C) $4,500
D) $1,700

Question 64

For a potential investment of $5,000,a portfolio has an expected monetary value (EMV)of $1,000 and a standard deviation of $100.What is the rate of return?

A) 10%
B) 50%
C) 20%
D) 5%

Question 65

Instruction 17-7
The following payoff table shows profits associated with a set of two alternatives under three possible events.
$$\begin{array} { l l l } \text { Event } & \text { Action A } & \text { Action B } \\\hline 1 & 1000 & 1200 \\2 & 500 & 700 \\3 & 300 & - 200\end{array}$$

-Referring to Instruction 17-7,what is the expected opportunity loss (EOL)for Action A?

Question 66

In portfolio analysis,the _______is the reciprocal of the return to risk ratio.

Question 67

Instruction 17-6
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to put in every week studying for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
$$\begin{array} { | l | l | l | l | } \hline & 16 \text { hours } & 8 \text { hours } & 4 \text { hours } \\\hline \text { Easy Exam } & 40 & 60 & 80 \\\hline \text { Difficult Exam } & 100 & 50 & 0 \\\hline\end{array}$$

-Referring to Instruction 17-6,the optimal strategy using the expected opportunity loss (EOL)criterion is to study 16 hours per week on average for the exam.

Question 68

For a potential investment of $5,000,a portfolio has an expected monetary value (EMV)of $1,000 and a standard deviation of $100.What is the coefficient of variation?

A) 50%
B) 100%
C) 10%
D) 20%

Question 69

Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.

-If the probability of selling 100 dozen roses is 0.2 and 200 dozen roses is 0.5,then the probability of selling 400 dozen roses is _______.

A) 0.7
B) 0.5
C) 0.2
D) 0.3

Question 70

Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.

-Given 0.2,0.4,and 0.4 are the probabilities for the sale of 100,200,or 400 dozen roses,respectively,then the optimal expected opportunity loss (EOL)for buying roses is ________.

A) $1,600
B) $700
C) $1,500
D) $900

Question 71

Instruction 17-7
The following payoff table shows profits associated with a set of two alternatives under three possible events.
$$\begin{array} { l l l } \text { Event } & \text { Action A } & \text { Action B } \\\hline 1 & 1000 & 1200 \\2 & 500 & 700 \\3 & 300 & - 200\end{array}$$

-Referring to Instruction 17-7,what is the expected opportunity loss (EOL)for Action B?

Question 72

Instruction 17-7
The following payoff table shows profits associated with a set of two alternatives under three possible events.
$$\begin{array} { l l l } \text { Event } & \text { Action A } & \text { Action B } \\\hline 1 & 1000 & 1200 \\2 & 500 & 700 \\3 & 300 & - 200\end{array}$$

-Referring to Instruction 17-7,what is the optimal action using expected monetary value (EMV)?

Question 73

Instruction 17-7
The following payoff table shows profits associated with a set of two alternatives under three possible events.
$$\begin{array} { l l l } \text { Event } & \text { Action A } & \text { Action B } \\\hline 1 & 1000 & 1200 \\2 & 500 & 700 \\3 & 300 & - 200\end{array}$$

-Referring to Instruction 17-7,what is the expected monetary value (EMV)for Action B?

Question 74

Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.

-Given 0.2,0.4,and 0.4 are the probabilities for the sale of 100,200,or 400 dozen roses,respectively,then the optimal alternative using expected monetary value (EMV)for selling roses is to buy _______ dozen roses.

A) 400
B) 200
C) 100
D) 600

Question 75

Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.

-Given 0.2,0.4,and 0.4 are the probabilities for the sale of 100,200,or 400 dozen roses,respectively,then the optimal expected monetary value (EMV)for buying roses is _______.

A) $700
B) $1,700
C) $900
D) $1,900

Question 76

For a potential investment of $5,000,a portfolio has an expected monetary value (EMV)of $1,000 and a standard deviation of $100.The return to risk ratio (RTRR)is _______.

A) 5
B) 10
C) 20
D) 50

Question 77

The minimum expected opportunity loss (EOL)is also equal to _______.

A) expected value of perfect information
B) expected profit under certainty
C) expected value under certainty minus the expected monetary value of the worst alternative
D) coefficient of variation

Question 78

Instruction 17-7
The following payoff table shows profits associated with a set of two alternatives under three possible events.
$$\begin{array} { l l l } \text { Event } & \text { Action A } & \text { Action B } \\\hline 1 & 1000 & 1200 \\2 & 500 & 700 \\3 & 300 & - 200\end{array}$$

-Referring to Instruction 17-7,what is the expected value of perfect information (EVPI)for this problem?

Question 79

The difference between expected payoff under certainty and expected value of the best act without certainty is the _______.

A) expected net present value
B) expected value of perfect information
C) expected rate of return
D) expected monetary value

Question 80

Instruction 17-7
The following payoff table shows profits associated with a set of two alternatives under three possible events.
$$\begin{array} { l l l } \text { Event } & \text { Action A } & \text { Action B } \\\hline 1 & 1000 & 1200 \\2 & 500 & 700 \\3 & 300 & - 200\end{array}$$

-Referring to Instruction 17-7,what is the optimal action using expected opportunity loss (EOL)?