Use the following payoff table to complete parts (a) through (f). The probabilit

Question

Use the following payoff table to complete parts (a) through (f). The probability of event 1 is 0.8,
the probablity of event 2 is 0.1 , and the probability of even 3 is 0.1.

a) Determine the optimal action based on the maximax criterion. Choose the correct answer below.
Action A/B is the optimal action based on the maximax criterion because its maximum/minimum payoff is the higher/lower of the two actions.

b). Determine the optimal action based on the maximin criterion. Choose the correct answer below.
Action A/B is the optimal action based on the maximax criterion because its maximum/minimum payoff is the higher/lower of the two actions.
c). Compute the expected monetary value (EMV) for actions A and B.
EMV (A) = $
EMV (B) = $
d.) Compute the expected opportunity loss (EOL) for actions A and B.
EOL (A) = $
EOL (B) = $

A stock has the following predicted returns under the following economic conditions. Use this information to complete the question Probability Return (S) Economic Condition 0.30 60 Recession 100 0.30 Stable economy Moderate Growth 130 0.30 200 Boom 0.10 a. Compute the expected monetary value EMV SL Simplify your answer.

Explanation / Answer

Expected monetary value = sum of (probability x return)

= 0.3x60 + 0.3x100 + 0.3x130 + 0.1x200

= $107

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