Chapter 10 Risk And Uncertainty.pdf

F5 acca performance management practice questions F5 acca performance management practice questions F5 acca performance management practice questions

Risk and Uncertainty

Prepared for Educational Purposes

August 16, 2025

Contents

1

1 Part 1: List of Questions

This section contains 50 multiple-choice questions based on Risk and Uncertainty, focus-ing on decision-makfocus-ing approaches, expected values, and risk attitudes Numbers are left-aligned from 1 to 50

1 Which of the following statements is/are correct?

1 Risk-averse decision makers will use the expected value approach to decision mak-ing

2 In a one-off decision, the expected value is a value that cannot actually occur

a Neither statement

b Statement 2 only

c Statement 1 only

d Both statements

2 Which of the following approaches to decision making is a risk-seeking approach?

a Minimax regret

b Expected values

c Maximin

d Maximax

3 A project has two outcomes: $10,000 with a 60% probability and $5,000 with a 40% probability What is the expected value?

a $7,000

b $7,500

c $8,000

d $8,500

4 Which of the following statements is/are true?

1 The maximin approach focuses on the best possible outcome

2 The minimax regret approach minimizes the maximum opportunity loss

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

5 A decision has three outcomes: $20,000 (30% probability), $10,000 (50% probability), and $5,000 (20% probability) What is the expected value?

a $11,500

b $12,000

c $12,500

d $13,000

6 Which decision-making approach would a risk-averse manager most likely use?

a Maximax

b Expected values

c Maximin

d Minimax regret

7 A decision has two alternatives: Alternative A has a worst-case outcome of $2,000, and Alternative B has a worst-case outcome of $3,000 Which would a risk-averse manager choose?

a Alternative A

b Alternative B

c Either, based on expected value

d Neither, based on probabilities

8 Which of the following statements is/are true?

1 Expected value is a risk-neutral approach

2 Risk-seeking managers prefer low-variance outcomes

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

9 A project has outcomes: $15,000 (40% probability), $10,000 (30% probability), $5,000 (30% probability) What is the expected value?

a $9,500

b $10,000

c $10,500

d $11,000

10 Which approach minimizes the maximum possible loss?

a Maximax

b Minimax regret

c Expected values

d Maximin

11 A decision has two alternatives: Alternative A (best outcome $50,000, worst $10,000), Alternative B (best outcome $40,000, worst $15,000) Which would a risk-seeking manager choose?

a Alternative A

b Alternative B

c Either, based on expected value

d Neither, based on probabilities

12 Which of the following statements is/are true?

1 The minimax regret approach requires a regret table

2 Expected value considers only the best-case scenario

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

13 A project has outcomes: $20,000 (50% probability), $10,000 (30% probability), $0 (20% probability) What is the expected value?

a $12,000

b $13,000

c $14,000

d $15,000

14 Which approach is most suitable for a manager who wants to balance risk and reward?

a Maximax

b Maximin

c Expected values

d Minimax regret

15 A decision has two alternatives: Alternative A (best outcome $30,000, worst $5,000), Alternative B (best outcome $25,000, worst $10,000) Which would a risk-averse manager choose?

a Alternative A

b Alternative B

c Either, based on expected value

d Neither, based on probabilities

16 Which of the following statements is/are true?

1 Risk-averse managers avoid the maximax approach

2 The expected value is always achievable in repeated trials

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

17 A project has outcomes: $25,000 (60% probability), $15,000 (20% probability), $5,000 (20% probability) What is the expected value?

a $18,000

b $19,000

c $20,000

d $21,000

18 Which approach focuses on the best possible outcome for each alternative?

a Maximin

b Minimax regret

c Maximax

d Expected values

19 A decision has three outcomes: $30,000 (40% probability), $20,000 (40% probability),

$10,000 (20% probability) What is the expected value?

a $21,000

b $22,000

c $23,000

d $24,000

20 Which approach is most likely used by a manager who wants to minimize opportunity loss?

a Maximax

b Maximin

c Expected values

d Minimax regret

21 A decision has two alternatives: Alternative A (best outcome $60,000, worst $20,000), Alternative B (best outcome $50,000, worst $25,000) Which would a risk-seeking manager choose?

a Alternative A

b Alternative B

c Either, based on expected value

d Neither, based on probabilities

22 Which of the following statements is/are true?

1 The maximin approach is suitable for optimistic managers

2 The minimax regret approach considers all possible outcomes

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

23 A project has outcomes: $40,000 (50% probability), $20,000 (30% probability), $10,000 (20% probability) What is the expected value?

a $25,000

b $26,000

c $27,000

d $28,000

24 Which approach assumes probabilities are known and used in calculations?

a Maximax

b Maximin

c Expected values

d Minimax regret

25 A decision has two alternatives: Alternative A (best outcome $45,000, worst $15,000), Alternative B (best outcome $40,000, worst $20,000) Which would a risk-averse manager choose?

a Alternative A

b Alternative B

c Either, based on expected value

d Neither, based on probabilities

26 Which of the following statements is/are true?

1 Risk-seeking managers prefer the maximax approach

2 Expected value ignores the variance of outcomes

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

27 A project has outcomes: $50,000 (40% probability), $30,000 (40% probability), $10,000 (20% probability) What is the expected value?

a $31,000

b $32,000

c $33,000

d $34,000

28 Which approach is least concerned with probabilities?

a Expected values

b Minimax regret

c Maximin

d Maximax

29 A decision has three outcomes: $35,000 (50% probability), $25,000 (30% probability),

$15,000 (20% probability) What is the expected value?

a $27,000

b $28,000

c $29,000

d $30,000

30 Which approach is most suitable for a manager who avoids extreme outcomes?

a Maximax

b Maximin

c Expected values

d Minimax regret

31 A decision has two alternatives: Alternative A (best outcome $70,000, worst $30,000), Alternative B (best outcome $60,000, worst $35,000) Which would a risk-seeking manager choose?

a Alternative A

b Alternative B

c Either, based on expected value

d Neither, based on probabilities

32 Which of the following statements is/are true?

1 The expected value approach is suitable for repeated decisions

2 The maximin approach maximizes potential gains

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

33 A project has outcomes: $60,000 (60% probability), $40,000 (20% probability), $20,000 (20% probability) What is the expected value?

a $48,000

b $49,000

c $50,000

d $51,000

34 Which approach requires constructing a payoff table?

a Expected values

b Minimax regret

c Maximin

d All of the above

35 A decision has two alternatives: Alternative A (best outcome $55,000, worst $25,000), Alternative B (best outcome $50,000, worst $30,000) Which would a risk-averse manager choose?

a Alternative A

b Alternative B

c Either, based on expected value

d Neither, based on probabilities

36 Which of the following statements is/are true?

1 Risk-averse managers prefer outcomes with higher certainty

2 The minimax regret approach is risk-seeking

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

37 A project has outcomes: $45,000 (50% probability), $30,000 (30% probability), $15,000 (20% probability) What is the expected value?

a $33,000

b $34,000

c $35,000

d $36,000

38 Which approach is most likely to be used in a one-off decision with high uncertainty?

a Expected values

b Maximin

c Maximax

d Minimax regret

39 A decision has three outcomes: $50,000 (40% probability), $30,000 (40% probability),

$10,000 (20% probability) What is the expected value?

a $31,000

b $32,000

c $33,000

d $34,000

40 Which approach focuses on the worst-case scenario for each alternative?

a Maximax

b Maximin

c Expected values

d Minimax regret

41 A decision has two alternatives: Alternative A (best outcome $80,000, worst $40,000), Alternative B (best outcome $70,000, worst $45,000) Which would a risk-averse manager choose?

a Alternative A

b Alternative B

c Either, based on expected value

d Neither, based on probabilities

42 Which of the following statements is/are true?

1 The maximax approach is suitable for risk-averse managers

2 Expected value is a weighted average of outcomes

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

43 A project has outcomes: $70,000 (50% probability), $50,000 (30% probability), $30,000 (20% probability) What is the expected value?

a $53,000

b $54,000

c $55,000

d $56,000

44 Which approach is most suitable for a manager who wants to minimize regret?

a Maximax

b Maximin

c Expected values

d Minimax regret

45 A decision has two alternatives: Alternative A (best outcome $65,000, worst $35,000), Alternative B (best outcome $60,000, worst $40,000) Which would a risk-seeking manager choose?

a Alternative A

b Alternative B

c Either, based on expected value

d Neither, based on probabilities

46 Which of the following statements is/are true?

1 The expected value approach is best for long-term decisions

2 The maximin approach considers probabilities of outcomes

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

47 A project has outcomes: $55,000 (60% probability), $35,000 (20% probability), $15,000 (20% probability) What is the expected value?

a $41,000

b $42,000

c $43,000

d $44,000

48 Which approach is least suitable for a risk-averse manager?

a Maximin

b Minimax regret

c Expected values

d Maximax

49 A decision has three outcomes: $60,000 (50% probability), $40,000 (30% probability),

$20,000 (20% probability) What is the expected value?

a $44,000

b $45,000

c $46,000

d $47,000

50 Which approach is most likely to be used by a manager who prioritizes the highest potential gain?

a Maximin

b Minimax regret

c Expected values

d Maximax

2 Part 2: Answers with Detailed Explanations

1 b Statement 2 only Explanation: Statement 1: False, risk-averse managers prefer

maximin, not expected value Statement 2: True, expected value is an average and may not occur in a one-off decision

2 d Maximax Explanation: Maximax selects the best possible outcome, which is

risk-seeking Expected values are risk-neutral, maximin is risk-averse, and minimax regret is cautious

3 c $8,000 Explanation: Expected value = 0.6 × 10, 000 + 0.4 × 5, 000 = 6, 000 +

2, 000 = 8, 000.

4 d Statement 2 only Explanation: Statement 1: False, maximin focuses on the

best worst-case outcome Statement 2: True, minimax regret minimizes maximum opportunity loss via a regret table

5 a $11,500 Explanation: Expected value = 0.3 ×20, 000+0.5×10, 000+0.2×5, 000 =

6, 000 + 5, 000 + 1, 000 = 11, 500.

6 c Maximin Explanation: Risk-averse managers prefer maximin to ensure the best

worst-case outcome.

7 a Alternative A Explanation: Risk-averse managers use maximin, choosing

Alter-native A (worst outcome $2,000) over AlterAlter-native B (worst outcome $3,000)

8 c Statement 1 only Explanation: Statement 1: True, expected value is risk-neutral.

Statement 2: False, risk-seeking managers prefer high-variance outcomes

9 c $10,500 Explanation: Expected value = 0.4 ×15, 000+0.3×10, 000+0.3×5, 000 =

6, 000 + 3, 000 + 1, 500 = 10, 500.

10 d Maximin Explanation: Maximin minimizes the maximum possible loss by

select-ing the best worst-case outcome

11 a Alternative A Explanation: Risk-seeking managers use maximax, choosing

Al-ternative A (best outcome $50,000) over AlAl-ternative B (best outcome $40,000)

12 c Statement 1 only Explanation: Statement 1: True, minimax regret requires a

regret table Statement 2: False, expected value considers all outcomes weighted by probabilities

13 b $13,000 Explanation: Expected value = 0.5 × 20, 000 + 0.3 × 10, 000 + 0.2 × 0 =

10, 000 + 3, 000 + 0 = 13, 000.

14 c Expected values Explanation: Expected values balance risk and reward by

weighting outcomes by probabilities

15 b Alternative B Explanation: Risk-averse managers use maximin, choosing

Alter-native B (worst outcome $10,000) over AlterAlter-native A (worst outcome $5,000)

16 c Statement 1 only Explanation: Statement 1: True, risk-averse managers avoid

maximax Statement 2: False, expected value is an average, not always achievable in one trial

17 a $18,000 Explanation: Expected value = 0.6 ×25, 000+0.2×15, 000+0.2×5, 000 =

15, 000 + 3, 000 + 1, 000 = 18, 000.

18 c Maximax Explanation: Maximax focuses on the best possible outcome for each

alternative

19 a $21,000 Explanation: Expected value = 0.4 ×30, 000+0.4×20, 000+0.2×10, 000 =

12, 000 + 8, 000 + 2, 000 = 21, 000.

20 d Minimax regret Explanation: Minimax regret minimizes the maximum

opportu-nity loss

21 a Alternative A Explanation: Risk-seeking managers use maximax, choosing

Al-ternative A (best outcome $60,000) over AlAl-ternative B (best outcome $50,000)

22 d Statement 2 only Explanation: Statement 1: False, maximin is for risk-averse

managers Statement 2: True, minimax regret considers all outcomes via a regret table

23 c $27,000 Explanation: Expected value = 0.5 ×40, 000+0.3×20, 000+0.2×10, 000 =

20, 000 + 6, 000 + 2, 000 = 27, 000.

24 c Expected values Explanation: Expected values require known probabilities for

calculations

25 b Alternative B Explanation: Risk-averse managers use maximin, choosing

Alter-native B (worst outcome $20,000) over AlterAlter-native A (worst outcome $15,000)

26 a Both statements Explanation: Statement 1: True, risk-seeking managers prefer

maximax Statement 2: True, expected value ignores variance, focusing on weighted averages

27 a $31,000 Explanation: Expected value = 0.4 ×50, 000+0.4×30, 000+0.2×10, 000 =

20, 000 + 12, 000 + 2, 000 = 31, 000.

28 c Maximin Explanation: Maximin and maximax do not require probabilities, unlike

expected values and minimax regret

29 a $27,000 Explanation: Expected value = 0.5 ×35, 000+0.3×25, 000+0.2×15, 000 =

17, 500 + 7, 500 + 3, 000 = 27, 000.

30 c Expected values Explanation: Expected values avoid extreme outcomes by

bal-ancing all outcomes

31 a Alternative A Explanation: Risk-seeking managers use maximax, choosing

Al-ternative A (best outcome $70,000) over AlAl-ternative B (best outcome $60,000)

32 c Statement 1 only Explanation: Statement 1: True, expected value is suitable for

repeated decisions Statement 2: False, maximin does not use probabilities

33 a $48,000 Explanation: Expected value = 0.6 ×60, 000+0.2×40, 000+0.2×20, 000 =

36, 000 + 8, 000 + 4, 000 = 48, 000.

34 d All of the above Explanation: Maximax, maximin, and minimax regret all use

payoff tables; expected values use them with probabilities

35 b Alternative B Explanation: Risk-averse managers use maximin, choosing

Alter-native B (worst outcome $30,000) over AlterAlter-native A (worst outcome $25,000)

36 c Statement 1 only Explanation: Statement 1: True, risk-averse managers prefer

certainty Statement 2: False, minimax regret is cautious, not risk-seeking

37 a $33,000 Explanation: Expected value = 0.5 ×45, 000+0.3×30, 000+0.2×15, 000 =

22, 500 + 9, 000 + 3, 000 = 33, 000.

38 b Maximin Explanation: Maximin is suitable for high uncertainty, focusing on the

best worst-case outcome

39 a $31,000 Explanation: Expected value = 0.4 ×50, 000+0.4×30, 000+0.2×10, 000 =

20, 000 + 12, 000 + 2, 000 = 31, 000.

40 b Maximin Explanation: Maximin focuses on the worst-case scenario for each

alternative

41 b Alternative B Explanation: Risk-averse managers use maximin, choosing

Alter-native B (worst outcome $45,000) over AlterAlter-native A (worst outcome $40,000)

42 d Statement 2 only Explanation: Statement 1: False, maximax is for risk-seeking

managers Statement 2: True, expected value is a weighted average

43 a $53,000 Explanation: Expected value = 0.5 ×70, 000+0.3×50, 000+0.2×30, 000 =

35, 000 + 15, 000 + 6, 000 = 53, 000.

44 d Minimax regret Explanation: Minimax regret minimizes the maximum regret.