Diagrams that permit the mapping of the various investment decision alternatives and payoffs as well as their probabilities of occurrence are called
A) simulations.
B) multiple regression analysis.
C) sensitivity analysis.
D) decision trees.

Question

Quizplus · Accepted Answer

Diagrams that permit the mapping of the various investment decision alternatives and payoffs as well as their probabilities of occurrence are called decision trees. A decision tree is a visual representation of a decision-making process that shows the relationship between choices and outcomes, including the likelihood of various events occurring. It allows decision makers to weigh the risks and rewards of different options and make informed decisions. Therefore, option D is the correct answer. Simulations are computer models used to simulate real-world situations, multiple regression analysis is a statistical technique used to establish the relationship between multiple variables, and sensitivity analysis is a method for analyzing how changes in one factor affect other factors in a financial model. While these concepts may be related to investment decision-making, none of them specifically involve diagramming the various alternatives and outcomes.

Diagrams That Permit the Mapping of the Various Investment Decision