Financial The Certified Internal Auditor Part 3 CIA-III Dumps in PDF

Free Financial CIA-III Real Questions (page: 48)

Your company' has decided to enter the European market with one of its products and is now considering three advertising strategies. This market currently belongs to Company X. Company X is mare that your company is entering the market and is itself considering steps to protect its market. An analyst for your company has identified three strategies Company X might develop and has shown the payoffs for each in the tables below.
The analyst has formulated this:

  1. Zero-sum game.
  2. Cooperative game.
  3. Prisoner's dilemma.
  4. Game against nature.

Answer(s): A

Explanation:

Game theory is a mathematical approach to decision making when confronted with an enemy or competitor. Games are classified according to the number of players and the algebraic sum of the payoffs. In a two-player game, if the payoff is given by the loser to the winner, the algebraic sum is zero, and the game is a zero-sum game. However, if it is possible for both players to profit, the game is a positive sum game. In this situation, the sum of the payoffs for each combination of strategies is zero. For example, if X takes no action and 1` chooses limited advertising. QC's payoff is -1 and Y's is 1. A bank plans to open a branch in one of five locations labeled L1, L2, L3, L4, L5). Demand for bank services may be high, medium, or low at each of these locations. Profits for each location-demand combination are presented in the payoff matrix.



If the bank uses the rnaxirna criterion for selecting the location of the branch, it will select:

  1. L1
  2. L2
  3. L3
  4. L4

Answer(s): D

Explanation:

Under the maximax criterion, the decision maker selects the choice that maximizes the maximum profit. The maximum profits for the five locations are



A bank plans to open a branch in one of five locations labeled L1, L2, L3, L4, L5). Demand for bank services may be high, medium, or low at each of these locations. Profits for each location- demand combination are presented in the payoff matrix.



If the bank uses the minimax regret criterion for selecting the location of the branch, it will select.

  1. L1.
  2. L2.
  3. L3.
  4. L4.

Answer(s): B

Explanation:

Under the minimax regret criterion, the decision maker selects the choice that minimizes the maximum regret (opportunity cost)the maximum regret for each location is determined from the opportunity loss matrix. The maximum regret for each location is the highest number in each column as indicated below.



If, in addition to the estimated profits, management of the bank assesses the probabilities of high, medium, and low demands to be 0.3, 0.4, and 0.3 respectively, what is the expected opportunity loss from selecting location of L4?

  1. 5.50
  2. 7.90
  3. 7.50
  4. 5.00

Answer(s): A

Explanation:

The opportunity loss matrix is as follow:



During the past few gears, Wilder Company has experienced the following average number of power outages:


Each power outage results in out-of-pocket costs of U $300. For U $1,000 per month, At US
$800 can lease generator to provide power during outages. If Wilder leases a generator in the coming year, the estimated savings or additional expense) for the year will be:

  1. U $ 15,200)
  2. US $ 1,267)
  3. U $3,200
  4. U $7,200

Answer(s): C

Explanation:

Each outage costs US $800, but this experience can be avoided by paying US $1,000 per month US $12,000 for the year). The expected-value approach uses the probability distribution derived from past experience to determine the average expected outages per month.

The company can expect to have, on average, 1.58334 outages per month. At US $800 per outage, the expected costs is US $1,266.67. Thus, paying US $1,000 to avoid an expense of US $1,266.67 saves US $266.67 per month, or US $3,200 per year.



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