Question 1

Instruction 17-4
The following information is from two investment opportunities.
$\begin{array} { r r r } &A & B \\text {Expected monetary value}& \$ 900 & \$ 600 \\text {Standard deviation}& 100 & 50 \end{array}$
-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.

Accepted Answer

The return to risk ratio (RTRR) is calculated by dividing the expected monetary value by the standard deviation. For Investment A, RTRR = $900 / 100 = 9. For Investment B, RTRR = $600 / 50 = 12. Therefore, Investment B has the higher RTRR, indicating a better return for the level of risk.

Question 2

Instruction 17-2
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$\begin{array} { c r r r } 
States & A 1 & A 2 & A 3 \
\hline 1 & 12 & - 2 & 8 \
2 & 4 & 10 & 5
\end{array}$
where: $\quad S 1$ is event $1 \quad A 1$ is action alternative 1 
$\quad\quad\quad\quad S 2$ is event $2 \quad A 2$ is action alternative 2 
$\quad\quad\quad\quad\quad\quad\quad A 3$ is action alternative 3
-Referring to Instruction 17-2,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.

Accepted Answer

The answer of Instruction 17-2
The following payoff table shows profits...

Question 3

Instruction 17-3
The following payoff matrix is given in dollars.
Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Instruction 17-3,what is the action with the preferable coefficient of variation?
A)Action A.
B)Action B.
C)Either Action A or Action B.
D)It cannot be determined.

Accepted Answer

The coefficient of variation for action B is 0.33, which is lower than the coefficient of variation for action A (0.75). Therefore, action B is the preferable choice based on the concept of risk aversion.

Question 4

Instruction 17-2
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$\begin{array} { c r r r } 
States & A 1 & A 2 & A 3 \
\hline 1 & 12 & - 2 & 8 \
2 & 4 & 10 & 5
\end{array}$
where: $\quad S 1$ is event $1 \quad A 1$ is action alternative 1 
$\quad\quad\quad\quad S 2$ is event $2 \quad A 2$ is action alternative 2 
$\quad\quad\quad\quad\quad\quad\quad A 3$ is action alternative 3
-Referring to Instruction 17-2,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.

Accepted Answer

To calculate the RTRR, we need to divide the expected profit by the standard deviation of the profit. For A1, the expected profit with a probability of 0.5 is (0.5*300)+(0.5*-200) = 50. The standard deviation can be calculated using the formula:

Standard deviation = sqrt(((p1-mean)^2 * x1) + ((p2-mean)^2 * x2))

Where p1 and p2 are the profits associated with the two events, x1 and x2 are the probabilities of those events, and mean is the expected profit.

Using this formula, we get:

Standard deviation = sqrt(((300-50)^2 * 0.5) + ((-200-50)^2 * 0.5)) = 186.6

Therefore, the RTRR for A1 is 50/186.6 = 0.267.

Since A1 has the lowest RTRR, it is not the best choice. The best choice would be the alternative with the highest RTRR, which is A3 with an RTRR of 0.5.

Question 5

Instruction 17-3
The following payoff matrix is given in dollars.
Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Instruction 17-3,the expected value of perfect information (EVPI)is
A)300.
B)600.
C)400.
D)0.

Accepted Answer

The answer of Instruction 17-3
The following payoff matrix is given...

Question 6

Instruction 17-2
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$\begin{array} { c r r r } 
States & A 1 & A 2 & A 3 \
\hline 1 & 12 & - 2 & 8 \
2 & 4 & 10 & 5
\end{array}$
where: $\quad S 1$ is event $1 \quad A 1$ is action alternative 1 
$\quad\quad\quad\quad S 2$ is event $2 \quad A 2$ is action alternative 2 
$\quad\quad\quad\quad\quad\quad\quad A 3$ is action alternative 3
-Referring to Instruction 17-2,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.

Accepted Answer

The expected monetary value (EMV) of each alternative is:EMV(A1) = 0.5 * 12 + 0.5 * 4 = 8EMV(A2) = 0.5 * (-2) + 0.5 * 10 = 4EMV(A3) = 0.5 * 8 + 0.5 * 5 = 6.5Therefore, the optimal alternative is A1, which has the highest EMV.

Question 7

Instruction 17-3
The following payoff matrix is given in dollars.
Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Instruction 17-3,what is the optimal action using the expected monetary value (EMV)criterion?
A)Action A.
B)Action B.
C)Either Action A or Action B.
D)It cannot be determined.

Accepted Answer

The answer of Instruction 17-3
The following payoff matrix is given...

Question 8

Instruction 17-2
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$\begin{array} { c r r r } 
States & A 1 & A 2 & A 3 \
\hline 1 & 12 & - 2 & 8 \
2 & 4 & 10 & 5
\end{array}$
where: $\quad S 1$ is event $1 \quad A 1$ is action alternative 1 
$\quad\quad\quad\quad S 2$ is event $2 \quad A 2$ is action alternative 2 
$\quad\quad\quad\quad\quad\quad\quad A 3$ is action alternative 3
-Referring to Instruction 17-2,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.

Accepted Answer

The EVPI is calculated as the difference between the expected value with perfect information and the expected value without perfect information. The expected value with perfect information is the maximum profit for each state weighted by their probabilities: (0.5 * 12) + (0.5 * 10) = 11. The expected value without perfect information is the maximum expected value of the actions: max((0.5 * 12) + (0.5 * 4), (0.5 * -2) + (0.5 * 10), (0.5 * 8) + (0.5 * 5)) = 8. Therefore, EVPI = 11 - 8 = 3.

Question 9

Instruction 17-2
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$\begin{array} { c r r r } 
States & A 1 & A 2 & A 3 \
\hline 1 & 12 & - 2 & 8 \
2 & 4 & 10 & 5
\end{array}$
where: $\quad S 1$ is event $1 \quad A 1$ is action alternative 1 
$\quad\quad\quad\quad S 2$ is event $2 \quad A 2$ is action alternative 2 
$\quad\quad\quad\quad\quad\quad\quad A 3$ is action alternative 3
-Referring to Instruction 17-2,if the probability of S1 is 0.5,then the expected profit under certainty (EPUC)is
A)8.
B)5.
C)3.
D)11.

Accepted Answer

The expected profit under certainty (EPUC) is calculated by taking the weighted average of the maximum profits for each state. For S1, the maximum profit is 12 (from A1), and for S2, it is 10 (from A2). With probabilities of 0.5 for each state, EPUC = 0.5 * 12 + 0.5 * 10 = 11.

Question 10

Instruction 17-3
The following payoff matrix is given in dollars.
Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Instruction 17-3,the expected profit under certainty (EPUC)is
A)300.
B)500.
C)600.
D)0.

Accepted Answer

To find the EPUC, we multiply the probability of each event by the payoff for that event and sum the products.
EPUC = (0.5 x 200) + (0.5 x 1000) = 600
Therefore, the best choice is to choose option 2 with a certainty, as it has the highest expected profit.

Question 11

Instruction 17-3
The following payoff matrix is given in dollars.
Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Instruction 17-3,the coefficient of variation for Action A is
A)12.8%.
B)33.3%.
C)333.3%.
D)133.33%.

Accepted Answer

To calculate the coefficient of variation, we need to first calculate the expected value and standard deviation of the payoffs for each action.
For Action A: 
Expected value = (500*0.5) + (1000*0.5) = 750 
Standard deviation = sqrt(((500-750)^2*0.5) + ((1000-750)^2*0.5)) = 250

Coefficient of variation = (standard deviation / expected value) * 100% = (250/750) * 100% = 33.3%

For Action B: 
Expected value = (1000*0.5) + (0*0.5) = 500 
Standard deviation = sqrt(((1000-500)^2*0.5) + ((0-500)^2*0.5)) = 500

Coefficient of variation = (standard deviation / expected value) * 100% = (500/500) * 100% = 100%

Therefore, Action A has a lower coefficient of variation, indicating less risk than Action B. Thus, the best choice is to choose Action A.

Question 12

Instruction 17-4
The following information is from two investment opportunities.
$\begin{array} { r r r } &A & B \\text {Expected monetary value}& \$ 900 & \$ 600 \\text {Standard deviation}& 100 & 50 \end{array}$
-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%

Accepted Answer

The answer of Instruction 17-4
The following information is from two...

Question 13

Instruction 17-3
The following payoff matrix is given in dollars.
Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Instruction 17-3,the return to risk ratio (RTRR)for Action B is
A)9.0.
B)3.0.
C)0.167.
D)6.0.

Accepted Answer

The answer of Instruction 17-3
The following payoff matrix is given...

Question 14

Instruction 17-3
The following payoff matrix is given in dollars.
Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Instruction 17-3,what is the optimal action using the expected opportunity loss (EOL)criterion?
A)Action A.
B)Action B.
C)Either Action A or Action B.
D)It cannot be determined.

Accepted Answer

To calculate the expected opportunity loss for each action, we first multiply the payoff for each outcome by its probability and then subtract from the maximum possible payoff for each action.

EOL for Action A: 
(0.5 * -$20) + (0.5 * -$15) = -$17.50

EOL for Action B: 
(0.5 * -$30) + (0.5 * $5) = -$12.50

Therefore, the optimal action according to the EOL criterion is to choose Action B, as it minimizes the expected opportunity loss.

Question 15

Instruction 17-3
The following payoff matrix is given in dollars.
Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Instruction 17-3,what is the action with the preferable return to risk ratio (RTRR)?
A)Action A.
B)Action B.
C)Either Action A or Action B.
D)It cannot be determined.

Accepted Answer

The answer of Instruction 17-3
The following payoff matrix is given...

Question 16

Instruction 17-4
The following information is from two investment opportunities.
$\begin{array} { r r r } &A & B \\text {Expected monetary value}& \$ 900 & \$ 600 \\text {Standard deviation}& 100 & 50 \end{array}$
-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.

Accepted Answer

The answer of Instruction 17-4
The following information is from two...

Question 17

Instruction 17-2
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$\begin{array} { c r r r } 
States & A 1 & A 2 & A 3 \
\hline 1 & 12 & - 2 & 8 \
2 & 4 & 10 & 5
\end{array}$
where: $\quad S 1$ is event $1 \quad A 1$ is action alternative 1 
$\quad\quad\quad\quad S 2$ is event $2 \quad A 2$ is action alternative 2 
$\quad\quad\quad\quad\quad\quad\quad A 3$ is action alternative 3
-Referring to Instruction 17-2,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.

Accepted Answer

The coefficient of variation is calculated as the standard deviation divided by the mean. For A2, the expected value is $0.5 \times (-2) + 0.5 \times 10 = 4$. The variance is $0.5 \times ((-2 - 4)^2) + 0.5 \times ((10 - 4)^2) = 36$, so the standard deviation is 6. The coefficient of variation is $6/4 = 1.5$.

Question 18

Instruction 17-3
The following payoff matrix is given in dollars.
Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Instruction 17-3,the expected opportunity cost (EOL)for Action A is
A)300.
B)200.
C)0.
D)100.

Accepted Answer

The expected opportunity cost (EOL) for Action A is the expected value of the payoff from Action B minus the expected value of the payoff from Action A. The expected value of the payoff from Action B is 0.5 * 300 + 0.5 * 100 = 200. The expected value of the payoff from Action A is 0.5 * 200 + 0.5 * 0 = 100. Therefore, the EOL for Action A is 200 - 100 = 100.

Question 19

Instruction 17-3
The following payoff matrix is given in dollars.
Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Instruction 17-3,the expected monetary value (EMV)for Action A is
A)$600.
B)$550.
C)$300.
D)$700.

Accepted Answer

The answer of Instruction 17-3
The following payoff matrix is given...

Question 20

Instruction 17-2
The following payoff table shows profits associated with a set of three alternatives under two possible events.
$\begin{array} { c r r r } 
States & A 1 & A 2 & A 3 \
\hline 1 & 12 & - 2 & 8 \
2 & 4 & 10 & 5
\end{array}$
where: $\quad S 1$ is event $1 \quad A 1$ is action alternative 1 
$\quad\quad\quad\quad S 2$ is event $2 \quad A 2$ is action alternative 2 
$\quad\quad\quad\quad\quad\quad\quad A 3$ is action alternative 3
-Referring to Instruction 17-2,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.

Accepted Answer

The answer of Instruction 17-2
The following payoff table shows profits...

Quiz 17: Decision Making

Instruction 17-3 The following payoff matrix is given in dollars. Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Instruction 17-3,what is the action with the preferable coefficient of variation?

Instruction 17-3 The following payoff matrix is given in dollars. Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Instruction 17-3,the expected value of perfect information (EVPI) is

Instruction 17-3 The following payoff matrix is given in dollars. Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Instruction 17-3,what is the optimal action using the expected monetary value (EMV) criterion?

Instruction 17-3 The following payoff matrix is given in dollars. Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Instruction 17-3,the expected profit under certainty (EPUC) is

Instruction 17-3 The following payoff matrix is given in dollars. Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Instruction 17-3,the coefficient of variation for Action A is

Instruction 17-3 The following payoff matrix is given in dollars. Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Instruction 17-3,the return to risk ratio (RTRR) for Action B is

Instruction 17-3 The following payoff matrix is given in dollars. Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Instruction 17-3,what is the optimal action using the expected opportunity loss (EOL) criterion?

Instruction 17-3 The following payoff matrix is given in dollars. Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Instruction 17-3,what is the action with the preferable return to risk ratio (RTRR) ?

Instruction 17-3 The following payoff matrix is given in dollars. Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Instruction 17-3,the expected opportunity cost (EOL) for Action A is

Instruction 17-3 The following payoff matrix is given in dollars. Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Instruction 17-3,the expected monetary value (EMV) for Action A is