CHAPTER 17 1) When a variable can take on different values a) it is a random variable b) it is a dependent variable c) it is an independent variable d) it is an exogenous variable ANS: A 2) The expec ...

---

CHAPTER 17
1)
When a variable can take on different values
a)
it is a random variable
b)
it is a dependent variable
c)
it is an independent variable
d)
it is an exogenous variable
ANS: A
2)
The expected value is
a)
the product of the sums of the probability and the values in different states
b)
the sum of the products of the probability and the values in different states
c) the difference between the products of the probability and the values in
different states
d) the difference between the sums of the probability and the values in different
states
ANS: B
3) Heads and tails are equally likely but you win a dollar on heads and lose a dollar on
tails
a)
the expected value is $0.50
b)
the expected value is -$0.50
c)
the expected value is $1.00
d)
the expected value is $0.00
ANS: D
4)
Heads and tails are equally likely but you win $2.00 on heads and lose $1.00 on tails
a)
the expected value is $0.50
b)
the expected value is -$0.50
c)
the expected value is $1.00
d)
the expected value is $0.00
ANS: A

5)
Heads and tails are equally likely but you win $3.00 on heads and lose $1.00 on tails
a)
the expected value is $0.50
b)
the expected value is -$0.50
c)
the expected value is $1.00
d)
the expected value is $0.00
ANS: C
6) You can invest $100,000 into either project A or B. You estimate that A succeeds with
probability 0.7 in which case it doubles in value. If it fails, the scrap value is worth
$50,000. Project B succeeds with probability 0.6, has value $150,000 if it succeeds
and value of $30,000 if not.
a)
You should invest in project A
b)
You should invest in project B
c)
You should not invest in either
d)
You cannot tell from the information presented
ANS: A
7) You can invest $100,000 into either project A or B. You estimate that A succeeds with
probability 0.6 in which case it doubles in value. If it fails, the scrap value is worth
$50,000. Project B succeeds with probability 0.7, has value $150,000 if it succeeds
and value of $30,000 if not.
a)
You should invest in project A
b)
You should invest in project B
c)
You should not invest in either
d)
You cannot tell from the information presented
ANS: A
8) You can invest $100,000 into either project A or B. You estimate that A succeeds with
probability 0.5 in which case it doubles in value. If it fails, the scrap value is worth
$50,000. Project B succeeds with probability 0.8, has value $150,000 if it succeeds
and value of $30,000 if not.
a)
You should invest in project A
b)
You should invest in project B
c)
You should not invest in either

d)
You cannot tell from the information presented
ANS: D
9) You can invest in either project A or B. Project A has value $100 with probability 0.1
and value $75 with probability 0.9. Project B has value $110 with probability 0.2 and
value $70 with probability 0.8.
a)
You should invest in project A
b)
You should invest in project B
c)
You should not invest in either
d)
You cannot tell from the information presented
ANS: D
10) You can invest in either