The following is a payoff table giving profits for various situations. Probability Alternative 1 Alternative 2 Alternative 3 Alternative 4 State 1 0.4 45 16 23 44 State 2 0.35 37 59 65 33 State 3 0.25 83 72 91 55 a) Using the expected monetary value (EMV), which alternative should be chosen? b) Set up the opportunity loss table and compute the minimum expected opportunity loss (EOL) c) What is the maximum value that you would be willing to pay to decide under certainty?

The following is a payoff table giving profits for various situations. Probability Alternative 1 Alternative 2 Alternative 3 Alternative 4 State 1 0.4 45 16 23 44 State 2 0.35 37 59 65 33 State 3 0.25 83 72 91 55 a) Using the expected monetary value (EMV), which alternative should be chosen? b) Set up the opportunity loss table and compute the minimum expected opportunity loss (EOL) c) What is the maximum value that you would be willing to pay to decide under certainty?

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 6P

See similar textbooks

Similar questions

The expected value, standard deviation of returns, and coefficient o below.) \table[[Asset A],[Possible Outcomes,Probability,Returns (%)
Make a simple example of the following: a. Capital Gain (or Losses) b. Expected Return c. Real Return d. Risk-free Return e. Required Return f. Holding Period Return
Expected return is,
Refer to the following payoff table (values are profit): State of Nature Alternative S1 S2 A1 75 −40 A2 0 100 Prior Probability 0.6 0.4 What is the expected payoff of the decision strategy (i.e. using the EMV/EP criterion)?
Expected return (Kj)
Define each of the following terms: c. Net present value (NPV) method; internal rate of return (IRR) method;profitability index (PI)
Describe the Methods for Finding Rate of Return?
What is the formula to find an expected in returns in CAPM
In calculating present value in a situation with a range of possible outcomes all discounted using the same interest rate, the expected present value would be the a.) most-likely outcome b.) sum of probability-weighted present value c.) maximum outcome d.) minimum outcome
The expected rate of return of an investment ________. a. equals one of the possible rates of return for that investment b. equals the required rate of return for the investment c. is the mean value of the probability distribution of possible returns d. is the median value of the probability distribution of possible returns e. is the mode value of the probability distribution of possible returns
c) Do the Net Present Value (NPV) and internal rate of return (IRR) always agree to accept-reject decisions? And to ranking decisions? Please explain.
Match each term with the best definition or descriptor. NPV is __________ ( a unitless ratio, a unit of time, a dollar vallue, or a rate of return). IRR is ___________ ( a unitless ratio, a unit of time, a dollar vallue, or a rate of return). Profitability index is __________( a unitless ratio, a unit of time, a dollar vallue, or a rate of return).