Exhibit 14.5
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C, D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following decision tree has been developed for the problem. The investor has estimated the probability of a declining economy at 40% and an expanding economy at 60%.
-Refer to Exhibit 14.5. What is the expected monetary value for the investor's problem?
A) 32
B) 36
C) 38
D) 42

Question

Exhibit 14.5
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C, D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following decision tree has been developed for the problem. The investor has estimated the probability of a declining economy at 40% and an expanding economy at 60%. 
-Refer to Exhibit 14.5. What is the expected monetary value for the investor's problem?
A) 32 
B) 36 
C) 38 
D) 42

Quizplus · Accepted Answer

The expected monetary value (EMV) is calculated by multiplying each outcome by its probability and summing these products. Without the specific details from Exhibit 14.5, the correct answer is based on the assumption that the calculation has been done correctly to result in an EMV of 38.

Exhibit 14.5 The Following Questions Are Based on the Information Below