- This topic has 1 reply, 2 voices, and was last updated 7 years ago by .
Viewing 2 posts - 1 through 2 (of 2 total)
Viewing 2 posts - 1 through 2 (of 2 total)
- You must be logged in to reply to this topic.
OpenTuition recommends the new interactive BPP books for June 2024 exams, Get your discount code >>
Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › bpp revision kit q81
q81 mcq page no 23
isnt the answers to mcq be identify all possible outcome and probabilities and assume decision will often be repeated
but I feel the answer given is wrong its given 1 and 2 :assume the investor is risk neutral
No the answer is correct.
As the answer says, using EV is more appropriate if the decision is repeated, but it can be used as an approach even when the decision is a one-off – even though it is a big limitation.
As far as choice 2 is concerned, EV certainly does assume that investors are risk neutral.
It is the wording of the question that makes the difference – the question simply speaks of calculating and using EV’s, not whether it is a perfect way of making decisions or not.
If you watch my lectures on risk and uncertainty, then I do explain why there is still a logic in applying it to one-off decisions (if you are risk-neutral).