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QUESTION 16 1

Accounting

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QUESTION 16 1. Exhibit 14.3 The following questions are based on the information below. An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from cach investment is a function of the economic climate over the next 2 years. The economy an expander decline. The following payoff matrix has been developed for the decision problem. The investors estimated the probability of a declining economy at 70% and an expanding economy 30% A B C D E G ? 1 2 Payoff Matrix F Regret Matrix 3 Economy EMV Dedine EOL Investment ? 4 Investment S A € B 7 C E Bank Economy Decline Expand -10 90 20 50 40 45 15 20 ? Bank 10 Probability 0.7 03 Probability 07 2. Refer to Exhibit 14.3. What decision should be made according to the expected monetary we decision rule? ? ? b. ? Bank A