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Compute the Expected Value of Perfect Information -What Is the Expected Opportunity Loss for the 30-Year Fixed

Question 24

Multiple Choice

Compute the expected value of perfect information.
Use the below information to answer the following question(s) . Below is a payoff table with three mortgage options:  Outcome  Probability 0.60.30.1 Decision  Rates Rise  Rates Stable  Rates Fall  1-year ARM $66,645$43,650$38,560 3-year ARM $62,857$47,698$42,726 30-year fixed $52,276$52,276$52,276\begin{array} { | l | l | l | l | } \hline & { \text { Outcome } } \\\hline \text { Probability } & { \mathbf { 0 . 6 } } & { \mathbf { 0 . 3 } } & { \mathbf { 0 . 1 } } \\\hline \text { Decision } & \text { Rates Rise } & \text { Rates Stable } & \text { Rates Fall } \\\hline \text { 1-year ARM } & \$ 66,645 & \$ 43,650 & \$ 38,560 \\\hline \text { 3-year ARM } & \$ 62,857 & \$ 47,698 & \$ 42,726 \\\hline \text { 30-year fixed } & \$ 52,276 & \$ 52,276 & \$ 52,276 \\\hline\end{array}
-What is the expected opportunity loss for the 30-year fixed decision?


A) $ 7,979.60
B) $ 3,959.40
C) $ 6,853.50
D) $ 8,621.40

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