Answer-first summary for fast verification
Answer: tree diagram.
**Explanation:** - **Option A (tree-map)** is incorrect because a tree-map is a graphical tool used to display categorical data, where rectangles represent distinct groups and their sizes correspond to the values of those groups. It is not suitable for representing probabilities of scenarios and outcomes. - **Option B (tree diagram)** is correct because it effectively illustrates the probabilities of different scenarios and their respective outcomes, making it ideal for this context. - **Option C (probability density function)** is incorrect as it applies to continuous random variables, whereas the given problem involves discrete probabilities for specific scenarios and outcomes. This aligns with the **Quantitative Methods** section, which emphasizes the use of probability trees to model investment problems and the application of conditional expectations.
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An analyst evaluates the probabilities of three distinct economic scenarios and the likelihood of a stock yielding a positive or negative return under each scenario. These scenarios are most effectively depicted using a:
A
tree-map.
B
tree diagram.
C
probability density function.