Question 1

The alternative which offers the lowest EOL is the same as the one which

Accepted Answer

A)  offers the highest. 
B)  maximizes the minimum gain. 
C)  minimizes the maximum loss. 
D)  maximizes the maximum gain.

Question 2

Determine the expected profit for the following distribution.

Accepted Answer

A)  $0 
B)  $20 
C)  $30 
D)  $41

Question 3

Suppose that the below represents the opportunity loss table for three stocks based on whether the market rises or declines. If there is a 30% chance of the market rising and a 70% chance of it declining, what is the expected opportunity loss for stock C?

Accepted Answer

A)  490 
B)  850 
C)  240 
D)  910 
E)  370

Question 4

Given the following decision table in which x, y, and z are decision alternatives and A and B are states of nature.  Which alternative would be chosen if using the maximax criterion?

Accepted Answer

A)  A 
B)  B 
C)  x 
D)  y 
E)  z

Question 5

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table.  If the probability of the market declining in the next year is 0.5, which of the following statements are correct?
i. The Expected value of stock purchased under conditions of certainty is $1,675.
ii. The Expected value of stock purchased under conditions of certainty is $2,200.
iii. The Expected value of stock purchased under conditions of certainty is $1,150.

Accepted Answer

A)  (i), (ii), and (iii) are all correct statements. 
B)  (i) is a correct statement but not (ii) or (iii). 
C)  (ii) is a correct statement but not (i) or (iii). 
D)  (iii) is a correct statement but not (i) or (ii). 
E)  (i), (ii), and (iii) are all false statements.

Question 6

A decision tree:

Accepted Answer

A)  uses a box to indicate the point at which a decision must be made. 
B)  is a picture of all the possible courses of action and the consequentpossible outcomes. 
C)  contains branches going out from the box which indicate the alternatives under consideration. 
D)  is a picture of all the possible courses of action and the consequentpossible outcomes, uses a box to indicate the point at which a decision must be made and contains branches going out from the box which indicate the alternatives under consideration.

Question 7

i. EVPI = Expected value under conditions of certainty-Optimal decision under conditions of uncertainty. 
ii. Three regret strategies that are often used are Maximin, Maximax, and Minimax.
iii. Rankings of the decision alternatives are frequently not highly sensitive to changes in the applied probabilities within a plausible range.

Accepted Answer

A)  (i), (ii), and (iii) are all correct statements. 
B)  (i) is a correct statement but not (ii) or (iii). 
C)  (i) and (iii) are correct statements but not (ii). 
D)  (ii) and (iii) are correct statements but not (i). 
E)  (i), (ii), and (iii) are all false statements.

Question 8

You have a decision to invest $10,000 in any of four different companies. You estimate the probabilities that the economy will be favourable or unfavourable and you estimate the percent returns over the next year.  What is the expected value for Company 4?

Accepted Answer

A)  5.20% 
B)  5.4% 
C)  5.6% 
D)  9.4%

Question 9

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table.  If the market declines in the next year, which of the following statements are correct?
i. The Opportunity Loss for Company A is $300.
ii. The Opportunity Loss for Company B is $0.
iii. The Opportunity Loss for Company C is $50.

Accepted Answer

A)  (i), (ii), and (iii) are all correct statements. 
B)  (i) is a correct statement but not (ii) or (iii). 
C)  (ii) is a correct statement but not (i) or (iii). 
D)  (ii) and (iii) are correct statements but not (i). 
E)  (i), (ii), and (iii) are all false statements.

Question 10

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table.  If the probability of the market declining in the next year is 0.4, which of the following statements are correct?
i. The Expected value of stock purchased under conditions of certainty is $1,980.
ii. The Expected value of stock purchased under conditions of certainty is $120.
iii. The Expected value of stock purchased under conditions of certainty is $440.

Accepted Answer

A)  (i), (ii), and (iii) are all correct statements. 
B)  (i) is a correct statement but not (ii) or (iii). 
C)  (ii) is a correct statement but not (i) or (iii). 
D)  (iii) is a correct statement but not (i) or (ii). 
E)  (i), (ii), and (iii) are all false statements.

Question 11

Determine the expected value for the following payoff table.

Accepted Answer

A)  $0 
B)  $200 
C)  $300 
D)  $410

Question 12

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table.  If the market declines in the next year, which of the following statements are correct?
i. The Opportunity Loss for Company A is $250.
ii. The Opportunity Loss for Company B is $150.
iii. The Opportunity Loss for Company C is $0.

Accepted Answer

A)  (i), (ii), and (iii) are all correct statements. 
B)  (i) is a correct statement but not (ii) or (iii). 
C)  (ii) is a correct statement but not (i) or (iii). 
D)  (ii) and (iii) are correct statements but not (i). 
E)  (i), (ii), and (iii) are all false statements.

Question 13

Consider the following decision table in which w, x, y, and z are decision alternatives and A and B are the two possible states of nature, with probabilities 0.40 and 0.60.  The expected value for decision W is ___________.

Accepted Answer

A)  40 
B)  75 
C)  80 
D)  220 
E)  30

Question 14

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table.  If the probability of the market declining in the next year is 0.5, which of the following statements are correct?
i. The Expected Opportunity Loss for Company A is $120.
ii. The Expected Opportunity Loss for Company B is $75.
iii. The Expected Opportunity Loss for Company C is $200.

Accepted Answer

A)  (i), (ii), and (iii) are all correct statements. 
B)  (i) is a correct statement but not (ii) or (iii). 
C)  (ii) is a correct statement but not (i) or (iii). 
D)  (ii) and (iii) are correct statements but not (i). 
E)  (i), (ii), and (iii) are all false statements.

Question 15

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table.  If the probability of the market declining in the next year is 0.4, which of the following statements are correct?
i. The Expected Opportunity Loss for Company A is $300.
ii. The Expected Opportunity Loss for Company B is $30.
iii. The Expected Opportunity Loss for Company C is $500.

Accepted Answer

A)  (i), (ii), and (iii) are all correct statements. 
B)  (i) is a correct statement but not (ii) or (iii). 
C)  (ii) is a correct statement but not (i) or (iii). 
D)  (ii) and (iii) are correct statements but not (i). 
E)  (i), (ii), and (iii) are all false statements.

Question 16

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table.  If the market rises in the next year, which of the following statements are correct?
i. The Opportunity Loss for Company A is $200.
ii. The Opportunity Loss for Company B is $0.
iii. The Opportunity Loss for Company C is $400.

Accepted Answer

A)  (i), (ii), and (iii) are all correct statements. 
B)  (i) is a correct statement but not (ii) or (iii). 
C)  (ii) is a correct statement but not (i) or (iii). 
D)  (i) and (ii) are correct statements but not (iii). 
E)  (i), (ii), and (iii) are all false statements.

Question 17

Consider the following decision table in which w, x, y, and z are decision alternatives and A and B are the two possible states of nature, with probabilities 0.40 and 0.60.  The expected value for decision Z is ___________.

Accepted Answer

A)  110 
B)  200 
C)  170 
D)  140 
E)  150

Question 18

You have a decision to invest $10,000 in any of four different companies. You estimate the probabilities that the economy will be favourable or unfavourable and you estimate the percent returns over the next year.  What is the expected value for Company 1?

Accepted Answer

A)  9.20% 
B)  9% 
C)  9.6% 
D)  9.4%

Question 19

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table.  If the market declines in the next year, which of the following statements are correct?
i. The Opportunity Loss for Company A is $300.
ii. The Opportunity Loss for Company B is $30.
iii. The Opportunity Loss for Company C is $500.

Accepted Answer

A)  (i), (ii), and (iii) are all correct statements. 
B)  (i) is a correct statement but not (ii) or (iii). 
C)  (ii) is a correct statement but not (i) or (iii). 
D)  (ii) and (iii) are correct statements but not (i). 
E)  (i), (ii), and (iii) are all false statements.

Question 20

Given the following decision table in which x, y, and z are decision alternatives and A and B are states of nature.  Which alternative would be chosen if using the maximin criterion?

Accepted Answer

A)  A 
B)  B 
C)  x 
D)  y 
E)  z

Exam 17: An Introduction to Decision Theory

The alternative which offers the lowest EOL is the same as the one which

Determine the expected profit for the following distribution.

Suppose that the below represents the opportunity loss table for three stocks based on whether the market rises or declines. If there is a 30% chance of the market rising and a 70% chance of it declining, what is the expected opportunity loss for stock C?

Given the following decision table in which x, y, and z are decision alternatives and A and B are states of nature. Which alternative would be chosen if using the maximax criterion?

A decision tree:

You have a decision to invest $10,000 in any of four different companies. You estimate the probabilities that the economy will be favourable or unfavourable and you estimate the percent returns over the next year. What is the expected value for Company 4?

Determine the expected value for the following payoff table.

Consider the following decision table in which w, x, y, and z are decision alternatives and A and B are the two possible states of nature, with probabilities 0.40 and 0.60. The expected value for decision W is ___________.

Consider the following decision table in which w, x, y, and z are decision alternatives and A and B are the two possible states of nature, with probabilities 0.40 and 0.60. The expected value for decision Z is ___________.

You have a decision to invest $10,000 in any of four different companies. You estimate the probabilities that the economy will be favourable or unfavourable and you estimate the percent returns over the next year. What is the expected value for Company 1?

Given the following decision table in which x, y, and z are decision alternatives and A and B are states of nature. Which alternative would be chosen if using the maximin criterion?