Exhibit 14.8
The following questions use the information below.
A company needs to buy a new insurance policy. They have three policies to choose from, A, B and C. The policies differ with respect to price, coverage and ease of billing. The company has developed the following AHP tables for price and summary. The other tables are not shown due to space limitations.
-An investor is considering 2 investments, A, B, which can be made now. After these investments are made he can pursue choices C, D, E and F depending on whether he chose A or B originally. He has developed the following decision tree to aid in his selection process. What are the correct original and subsequent decisions based on an expected monetary value criterion?
A) A, C
B) A, D
C) B, E
D) B, F

Question

Exhibit 14.8
The following questions use the information below.
A company needs to buy a new insurance policy. They have three policies to choose from, A, B and C. The policies differ with respect to price, coverage and ease of billing. The company has developed the following AHP tables for price and summary. The other tables are not shown due to space limitations.  
-An investor is considering 2 investments, A, B, which can be made now. After these investments are made he can pursue choices C, D, E and F depending on whether he chose A or B originally. He has developed the following decision tree to aid in his selection process. What are the correct original and subsequent decisions based on an expected monetary value criterion? ​  ​
A) A, C 
B) A, D 
C) B, E 
D) B, F

Quizplus · Accepted Answer

Based on the expected monetary value criterion, the investor should choose option B as it has a higher expected monetary value of $130,000 compared to option A's expected monetary value of $120,000. If option B is chosen, the subsequent decision would be to choose option F, as it has the higher expected monetary value of $150,000 compared to option E's expected monetary value of $110,000. Therefore, the best choice(s) for the investor would be B, F.

Exhibit 14.8 The Following Questions Use the Information Below