A small business must make a decision about how to finance the purchase of their new facility. There are three alternative mortgage options available: 1 year variable rate mortgage; 3 year variable rate mortgage; and 5 year fixed rate mortgage These variable rate mortgages are sensitive to future interest rate changes. Rates may rise, may remain stable, or may fall. The payoffs (interest paid over first 5 years) associated with each alternative and each state of nature have been estimated as in table provided. States of Nature Alternatives Rates rise Rates stable Rates fall A1 1-year VRM $61,000 $46,000 $40,000 A2 3-year VRM $57,000 $51,000 $47,000 A3 5-year Fixed $54,500 $54,500 $54,500 Suggest the payoffs with the best alternatives considering the following criteria: Equal probabilities criterion Optimism Criterion A A A Pessimism Criterion - conservative approach A Criterion of Realism (Hurwicz) (alpha = 0.4) Regret (Savage) Criterion Additional information suggests that probability of rate rise, rates being stable as given in the table. Rates Rates rise stable States of Nature Rates fall 0.5 0.3 Suggest the payoffs with the best alternatives considering the following criteria Expected Monetary Value (EMV) criterion and considering 2. Expected Opportunity Loss (EOL) or regret criterion. Using the formula, find out the value of perfect information. A Expected Value (EV) or Expected Monetary Value (EMV) A Expected Opportunity Loss (EOL) or regret Expected Value with Perfect Information Expected Value of Perfect Information =