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Deck 23: Decision Making and Risk
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Question
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Based on the expected value approach, the landowner should
A) build townhouses/condominiums if interest rates stay about the same.
B) build detached homes in a planned retirement community.
C) build townhouses/condominiums if interest rates go down.
D) build townhouses/condominiums.
E) build townhouses/condominiums if interest rates go up.
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Based on the expected value approach, the landowner should
A) build townhouses/condominiums if interest rates stay about the same.
B) build detached homes in a planned retirement community.
C) build townhouses/condominiums if interest rates go down.
D) build townhouses/condominiums.
E) build townhouses/condominiums if interest rates go up.
Question
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
If the landowner is risk averse he would choose the action with the lowest Coefficient of Variation (CV). Which of the following is true?
A) The CV is lower for building townhouses and condominiums.
B) The CV is lower for building detached homes in a planned retirement community.
C) Even if the landowner is risk averse, the CV leads to the same choice as the expected value approach.
D) The CV is higher for building townhouses and condominiums, and even if the landowner is risk averse, the CV leads to the same choice as the expected value approach.
E) The CV is lower for building detached homes in a planned retirement community, and even if the landowner is risk averse, the CV leads to the same choice as the expected value approach.
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
If the landowner is risk averse he would choose the action with the lowest Coefficient of Variation (CV). Which of the following is true?
A) The CV is lower for building townhouses and condominiums.
B) The CV is lower for building detached homes in a planned retirement community.
C) Even if the landowner is risk averse, the CV leads to the same choice as the expected value approach.
D) The CV is higher for building townhouses and condominiums, and even if the landowner is risk averse, the CV leads to the same choice as the expected value approach.
E) The CV is lower for building detached homes in a planned retirement community, and even if the landowner is risk averse, the CV leads to the same choice as the expected value approach.
Question
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Suppose housing analysts predict that the probabilities for future mortgage interest rates going up, staying about the same, and going down are 0.35, 0.50 and 0.15, respectively. The expected value for building detached homes in a planned retirement community is
A) $2.5 million.
B) $3.625 million.
C) $2.75 million.
D) $875,000.
E) $46.25 million.
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Suppose housing analysts predict that the probabilities for future mortgage interest rates going up, staying about the same, and going down are 0.35, 0.50 and 0.15, respectively. The expected value for building detached homes in a planned retirement community is
A) $2.5 million.
B) $3.625 million.
C) $2.75 million.
D) $875,000.
E) $46.25 million.
Question
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
What is the expected value of perfect information?
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
What is the expected value of perfect information?
Question
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
According to the maximin approach, the farmer should
A) hire migrant workers if the growing season is good.
B) hire teenagers.
C) not do any extra hiring.
D) hire migrant workers.
E) hire teenagers if the growing season is good.
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
According to the maximin approach, the farmer should
A) hire migrant workers if the growing season is good.
B) hire teenagers.
C) not do any extra hiring.
D) hire migrant workers.
E) hire teenagers if the growing season is good.
Question
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
According to the maximin approach, the landowner should
A) build detached homes in a planned retirement community if interest rates go down.
B) build detached homes in a planned retirement community.
C) build detached homes in a planned retirement community if interest rates go up.
D) build townhouses/condominiums.
E) build detached homes in a planned retirement community if interest rates stay about the same.
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
According to the maximin approach, the landowner should
A) build detached homes in a planned retirement community if interest rates go down.
B) build detached homes in a planned retirement community.
C) build detached homes in a planned retirement community if interest rates go up.
D) build townhouses/condominiums.
E) build detached homes in a planned retirement community if interest rates stay about the same.
Question
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Compute the Coefficient of Variation for each action. If the farm owner is risk averse, would the CV approach lead to the same choice as the expected value approach? Explain.
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Compute the Coefficient of Variation for each action. If the farm owner is risk averse, would the CV approach lead to the same choice as the expected value approach? Explain.
Question
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Compute the standard deviation for each action.
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Compute the standard deviation for each action.
Question
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Compute the standard deviation for each action.
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Compute the standard deviation for each action.
Question
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Suppose the Farmers' Almanac predicts the probability of a good growing season this year to be 0.75. What is the expected value of hiring teenagers?
A) $62,500
B) $52,500
C) $46,250
D) $12,990
E) $20,313
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Suppose the Farmers' Almanac predicts the probability of a good growing season this year to be 0.75. What is the expected value of hiring teenagers?
A) $62,500
B) $52,500
C) $46,250
D) $12,990
E) $20,313
Question
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Using the maximin approach, which action should the farm owner choose?
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Using the maximin approach, which action should the farm owner choose?
Question
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
What is the expected value of perfect information?
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
What is the expected value of perfect information?
Question
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Using the maximax approach, which action should the farm owner choose?
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Using the maximax approach, which action should the farm owner choose?
Question
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Suppose housing analysts predict that the probabilities for future mortgage interest rates going up, staying about the same, and going down are 0.35, 0.50 and 0.15, respectively. Compute the expected value for each action. Based on these results, which action should the landowner choose?
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Suppose housing analysts predict that the probabilities for future mortgage interest rates going up, staying about the same, and going down are 0.35, 0.50 and 0.15, respectively. Compute the expected value for each action. Based on these results, which action should the landowner choose?
Question
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
The expected value of perfect information is
A) $2.5 million.
B) $3.625 million.
C) $2.75 million.
D) $875,000.
E) $40.00 million.
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
The expected value of perfect information is
A) $2.5 million.
B) $3.625 million.
C) $2.75 million.
D) $875,000.
E) $40.00 million.
Question
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Using the maximax approach, which action should the landowner choose?
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Using the maximax approach, which action should the landowner choose?
Question
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Based on the expected value approach, the farmer should
A) hire teenagers if the growing season is good.
B) hire teenagers.
C) not do any extra hiring.
D) hire migrant workers.
E) not do any extra hiring if the growing season is bad.
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Based on the expected value approach, the farmer should
A) hire teenagers if the growing season is good.
B) hire teenagers.
C) not do any extra hiring.
D) hire migrant workers.
E) not do any extra hiring if the growing season is bad.
Question
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Compute the Coefficient of Variation for each action. If the landowner is risk averse, would the CV approach lead to the same choice as the expected value approach? Explain.
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Compute the Coefficient of Variation for each action. If the landowner is risk averse, would the CV approach lead to the same choice as the expected value approach? Explain.
Question
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Suppose the farmer's almanac predicts the probability of a good growing season this year to be 0.75. Compute the expected value for each action. Based on these results, which action should the farm owner choose?
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Suppose the farmer's almanac predicts the probability of a good growing season this year to be 0.75. Compute the expected value for each action. Based on these results, which action should the farm owner choose?
Question
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Using the maximin approach, which action should the land owner choose?
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Using the maximin approach, which action should the land owner choose?
Question
Consider the following to answer the question(s) below:
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
Historically the probability of rain on the day of the planned concert is 0.20. What is the expected value of an indoor concert?
A) $14,000
B) $26,000
C) $4,000
D) $2,000
E) $10,000
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
Historically the probability of rain on the day of the planned concert is 0.20. What is the expected value of an indoor concert?
A) $14,000
B) $26,000
C) $4,000
D) $2,000
E) $10,000
Question
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
The standard deviation for hiring migrant workers is
A) $21,651.
B) $12,990.
C) $5,495.
D) $2,500.
E) $147.
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
The standard deviation for hiring migrant workers is
A) $21,651.
B) $12,990.
C) $5,495.
D) $2,500.
E) $147.
Question
Consider the following to answer the question(s) below:
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
The standard deviation for an outdoor concert is
A) $18,000.
B) $14,000.
C) $2,000.
D) $26,000.
E) $10,770.
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
The standard deviation for an outdoor concert is
A) $18,000.
B) $14,000.
C) $2,000.
D) $26,000.
E) $10,770.
Question
Consider the following to answer the question(s) below:
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The expected value of mutual funds is
A) $525.
B) $150.
C) $600.
D) $1,150.
E) $925.
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The expected value of mutual funds is
A) $525.
B) $150.
C) $600.
D) $1,150.
E) $925.
Question
Consider the following to answer the question(s) below:
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The Return to Risk Ratio for bonds is
A) 8.4854.
B) 70.71.
C) 0.1055.
D) 1.8935.
E) 0.1179.
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The Return to Risk Ratio for bonds is
A) 8.4854.
B) 70.71.
C) 0.1055.
D) 1.8935.
E) 0.1179.
Question
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
If the farmer is risk averse, he would
A) hire migrant workers.
B) hire teenagers.
C) not do any extra hiring.
D) make the same decision as he would using the expected value approach.
E) give up farming.
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
If the farmer is risk averse, he would
A) hire migrant workers.
B) hire teenagers.
C) not do any extra hiring.
D) make the same decision as he would using the expected value approach.
E) give up farming.
Question
Consider the following to answer the question(s) below:
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The expected value with perfect information is
A) $925.
B) $600.
C) $525.
D) $325.
E) $150.
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The expected value with perfect information is
A) $925.
B) $600.
C) $525.
D) $325.
E) $150.
Question
Consider the following to answer the question(s) below:
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
If the group is risk averse, they should
A) plan to hold the event indoors.
B) plan to hold the event outdoors.
C) make the same decision as they would using the expected value approach.
D) decide not to hold the event at all.
E) plan to hold the event outdoors if it does not rain.
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
If the group is risk averse, they should
A) plan to hold the event indoors.
B) plan to hold the event outdoors.
C) make the same decision as they would using the expected value approach.
D) decide not to hold the event at all.
E) plan to hold the event outdoors if it does not rain.
Question
Consider the following to answer the question(s) below:
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
According to the maximax approach, the investor would place his $10,000 in
A) stocks.
B) bonds.
C) mutual funds.
D) mutual funds if there is economic growth.
E) bonds if there is no change in economic climate.
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
According to the maximax approach, the investor would place his $10,000 in
A) stocks.
B) bonds.
C) mutual funds.
D) mutual funds if there is economic growth.
E) bonds if there is no change in economic climate.
Question
Consider the following to answer the question(s) below:
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
According to the maximin approach, the group should
A) hold the concert indoors.
B) hold the concert outdoors.
C) hold the concert outdoors if it does not rain.
D) hold the concert indoors if it rains.
E) hold the concert indoors if it does not rain.
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
According to the maximin approach, the group should
A) hold the concert indoors.
B) hold the concert outdoors.
C) hold the concert outdoors if it does not rain.
D) hold the concert indoors if it rains.
E) hold the concert indoors if it does not rain.
Question
Consider the following to answer the question(s) below:
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The expected value of perfect information is
A) $325.
B) $400.
C) $775.
D) $925.
E) $600.
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The expected value of perfect information is
A) $325.
B) $400.
C) $775.
D) $925.
E) $600.
Question
Consider the following to answer the question(s) below:
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
What is the expected value of perfect information?
A) $4,000
B) $30,000
C) $14,000
D) $26,000
E) $10,000
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
What is the expected value of perfect information?
A) $4,000
B) $30,000
C) $14,000
D) $26,000
E) $10,000
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Deck 23: Decision Making and Risk
1
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Based on the expected value approach, the landowner should
A) build townhouses/condominiums if interest rates stay about the same.
B) build detached homes in a planned retirement community.
C) build townhouses/condominiums if interest rates go down.
D) build townhouses/condominiums.
E) build townhouses/condominiums if interest rates go up.
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Based on the expected value approach, the landowner should
A) build townhouses/condominiums if interest rates stay about the same.
B) build detached homes in a planned retirement community.
C) build townhouses/condominiums if interest rates go down.
D) build townhouses/condominiums.
E) build townhouses/condominiums if interest rates go up.
build detached homes in a planned retirement community.
2
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
If the landowner is risk averse he would choose the action with the lowest Coefficient of Variation (CV). Which of the following is true?
A) The CV is lower for building townhouses and condominiums.
B) The CV is lower for building detached homes in a planned retirement community.
C) Even if the landowner is risk averse, the CV leads to the same choice as the expected value approach.
D) The CV is higher for building townhouses and condominiums, and even if the landowner is risk averse, the CV leads to the same choice as the expected value approach.
E) The CV is lower for building detached homes in a planned retirement community, and even if the landowner is risk averse, the CV leads to the same choice as the expected value approach.
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
If the landowner is risk averse he would choose the action with the lowest Coefficient of Variation (CV). Which of the following is true?
A) The CV is lower for building townhouses and condominiums.
B) The CV is lower for building detached homes in a planned retirement community.
C) Even if the landowner is risk averse, the CV leads to the same choice as the expected value approach.
D) The CV is higher for building townhouses and condominiums, and even if the landowner is risk averse, the CV leads to the same choice as the expected value approach.
E) The CV is lower for building detached homes in a planned retirement community, and even if the landowner is risk averse, the CV leads to the same choice as the expected value approach.
The CV is lower for building townhouses and condominiums.
3
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Suppose housing analysts predict that the probabilities for future mortgage interest rates going up, staying about the same, and going down are 0.35, 0.50 and 0.15, respectively. The expected value for building detached homes in a planned retirement community is
A) $2.5 million.
B) $3.625 million.
C) $2.75 million.
D) $875,000.
E) $46.25 million.
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Suppose housing analysts predict that the probabilities for future mortgage interest rates going up, staying about the same, and going down are 0.35, 0.50 and 0.15, respectively. The expected value for building detached homes in a planned retirement community is
A) $2.5 million.
B) $3.625 million.
C) $2.75 million.
D) $875,000.
E) $46.25 million.
$2.75 million.
4
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
What is the expected value of perfect information?
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
What is the expected value of perfect information?
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5
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
According to the maximin approach, the farmer should
A) hire migrant workers if the growing season is good.
B) hire teenagers.
C) not do any extra hiring.
D) hire migrant workers.
E) hire teenagers if the growing season is good.
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
According to the maximin approach, the farmer should
A) hire migrant workers if the growing season is good.
B) hire teenagers.
C) not do any extra hiring.
D) hire migrant workers.
E) hire teenagers if the growing season is good.
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6
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
According to the maximin approach, the landowner should
A) build detached homes in a planned retirement community if interest rates go down.
B) build detached homes in a planned retirement community.
C) build detached homes in a planned retirement community if interest rates go up.
D) build townhouses/condominiums.
E) build detached homes in a planned retirement community if interest rates stay about the same.
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
According to the maximin approach, the landowner should
A) build detached homes in a planned retirement community if interest rates go down.
B) build detached homes in a planned retirement community.
C) build detached homes in a planned retirement community if interest rates go up.
D) build townhouses/condominiums.
E) build detached homes in a planned retirement community if interest rates stay about the same.
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7
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Compute the Coefficient of Variation for each action. If the farm owner is risk averse, would the CV approach lead to the same choice as the expected value approach? Explain.
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Compute the Coefficient of Variation for each action. If the farm owner is risk averse, would the CV approach lead to the same choice as the expected value approach? Explain.
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8
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Compute the standard deviation for each action.
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Compute the standard deviation for each action.
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9
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Compute the standard deviation for each action.
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Compute the standard deviation for each action.
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10
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Suppose the Farmers' Almanac predicts the probability of a good growing season this year to be 0.75. What is the expected value of hiring teenagers?
A) $62,500
B) $52,500
C) $46,250
D) $12,990
E) $20,313
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Suppose the Farmers' Almanac predicts the probability of a good growing season this year to be 0.75. What is the expected value of hiring teenagers?
A) $62,500
B) $52,500
C) $46,250
D) $12,990
E) $20,313
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11
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Using the maximin approach, which action should the farm owner choose?
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Using the maximin approach, which action should the farm owner choose?
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12
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
What is the expected value of perfect information?
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
What is the expected value of perfect information?
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13
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Using the maximax approach, which action should the farm owner choose?
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Using the maximax approach, which action should the farm owner choose?
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14
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Suppose housing analysts predict that the probabilities for future mortgage interest rates going up, staying about the same, and going down are 0.35, 0.50 and 0.15, respectively. Compute the expected value for each action. Based on these results, which action should the landowner choose?
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Suppose housing analysts predict that the probabilities for future mortgage interest rates going up, staying about the same, and going down are 0.35, 0.50 and 0.15, respectively. Compute the expected value for each action. Based on these results, which action should the landowner choose?
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15
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
The expected value of perfect information is
A) $2.5 million.
B) $3.625 million.
C) $2.75 million.
D) $875,000.
E) $40.00 million.
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
The expected value of perfect information is
A) $2.5 million.
B) $3.625 million.
C) $2.75 million.
D) $875,000.
E) $40.00 million.
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16
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Using the maximax approach, which action should the landowner choose?
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Using the maximax approach, which action should the landowner choose?
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17
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Based on the expected value approach, the farmer should
A) hire teenagers if the growing season is good.
B) hire teenagers.
C) not do any extra hiring.
D) hire migrant workers.
E) not do any extra hiring if the growing season is bad.
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Based on the expected value approach, the farmer should
A) hire teenagers if the growing season is good.
B) hire teenagers.
C) not do any extra hiring.
D) hire migrant workers.
E) not do any extra hiring if the growing season is bad.
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18
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Compute the Coefficient of Variation for each action. If the landowner is risk averse, would the CV approach lead to the same choice as the expected value approach? Explain.
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Compute the Coefficient of Variation for each action. If the landowner is risk averse, would the CV approach lead to the same choice as the expected value approach? Explain.
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19
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Suppose the farmer's almanac predicts the probability of a good growing season this year to be 0.75. Compute the expected value for each action. Based on these results, which action should the farm owner choose?
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
Suppose the farmer's almanac predicts the probability of a good growing season this year to be 0.75. Compute the expected value for each action. Based on these results, which action should the farm owner choose?
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20
Consider the following to answer the question(s) below:
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Using the maximin approach, which action should the land owner choose?
A landowner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below.
Using the maximin approach, which action should the land owner choose?
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21
Consider the following to answer the question(s) below:
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
Historically the probability of rain on the day of the planned concert is 0.20. What is the expected value of an indoor concert?
A) $14,000
B) $26,000
C) $4,000
D) $2,000
E) $10,000
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
Historically the probability of rain on the day of the planned concert is 0.20. What is the expected value of an indoor concert?
A) $14,000
B) $26,000
C) $4,000
D) $2,000
E) $10,000
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22
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
The standard deviation for hiring migrant workers is
A) $21,651.
B) $12,990.
C) $5,495.
D) $2,500.
E) $147.
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
The standard deviation for hiring migrant workers is
A) $21,651.
B) $12,990.
C) $5,495.
D) $2,500.
E) $147.
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23
Consider the following to answer the question(s) below:
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
The standard deviation for an outdoor concert is
A) $18,000.
B) $14,000.
C) $2,000.
D) $26,000.
E) $10,770.
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
The standard deviation for an outdoor concert is
A) $18,000.
B) $14,000.
C) $2,000.
D) $26,000.
E) $10,770.
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24
Consider the following to answer the question(s) below:
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The expected value of mutual funds is
A) $525.
B) $150.
C) $600.
D) $1,150.
E) $925.
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The expected value of mutual funds is
A) $525.
B) $150.
C) $600.
D) $1,150.
E) $925.
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25
Consider the following to answer the question(s) below:
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The Return to Risk Ratio for bonds is
A) 8.4854.
B) 70.71.
C) 0.1055.
D) 1.8935.
E) 0.1179.
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The Return to Risk Ratio for bonds is
A) 8.4854.
B) 70.71.
C) 0.1055.
D) 1.8935.
E) 0.1179.
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26
Consider the following to answer the question(s) below:
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
If the farmer is risk averse, he would
A) hire migrant workers.
B) hire teenagers.
C) not do any extra hiring.
D) make the same decision as he would using the expected value approach.
E) give up farming.
A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below.
If the farmer is risk averse, he would
A) hire migrant workers.
B) hire teenagers.
C) not do any extra hiring.
D) make the same decision as he would using the expected value approach.
E) give up farming.
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27
Consider the following to answer the question(s) below:
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The expected value with perfect information is
A) $925.
B) $600.
C) $525.
D) $325.
E) $150.
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The expected value with perfect information is
A) $925.
B) $600.
C) $525.
D) $325.
E) $150.
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28
Consider the following to answer the question(s) below:
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
If the group is risk averse, they should
A) plan to hold the event indoors.
B) plan to hold the event outdoors.
C) make the same decision as they would using the expected value approach.
D) decide not to hold the event at all.
E) plan to hold the event outdoors if it does not rain.
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
If the group is risk averse, they should
A) plan to hold the event indoors.
B) plan to hold the event outdoors.
C) make the same decision as they would using the expected value approach.
D) decide not to hold the event at all.
E) plan to hold the event outdoors if it does not rain.
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29
Consider the following to answer the question(s) below:
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
According to the maximax approach, the investor would place his $10,000 in
A) stocks.
B) bonds.
C) mutual funds.
D) mutual funds if there is economic growth.
E) bonds if there is no change in economic climate.
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
According to the maximax approach, the investor would place his $10,000 in
A) stocks.
B) bonds.
C) mutual funds.
D) mutual funds if there is economic growth.
E) bonds if there is no change in economic climate.
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30
Consider the following to answer the question(s) below:
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
According to the maximin approach, the group should
A) hold the concert indoors.
B) hold the concert outdoors.
C) hold the concert outdoors if it does not rain.
D) hold the concert indoors if it rains.
E) hold the concert indoors if it does not rain.
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
According to the maximin approach, the group should
A) hold the concert indoors.
B) hold the concert outdoors.
C) hold the concert outdoors if it does not rain.
D) hold the concert indoors if it rains.
E) hold the concert indoors if it does not rain.
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31
Consider the following to answer the question(s) below:
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The expected value of perfect information is
A) $325.
B) $400.
C) $775.
D) $925.
E) $600.
An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25.
Action Economic Climate
The expected value of perfect information is
A) $325.
B) $400.
C) $775.
D) $925.
E) $600.
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32
Consider the following to answer the question(s) below:
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
What is the expected value of perfect information?
A) $4,000
B) $30,000
C) $14,000
D) $26,000
E) $10,000
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
What is the expected value of perfect information?
A) $4,000
B) $30,000
C) $14,000
D) $26,000
E) $10,000
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