A real estate investor has the opportunity to purchase land currently zoned as residential. If the county board approves a request to rezone the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. However, if the zoning change is not approved, the investor will have to sell the property at a loss. Profits (in thousands of dollars) are shown in the following payoff table: State of Nature tions Navigation Menu Rezoning Approved Rezoning Not Approved Decision Alternative S1 52 Purchase, di 610 -190 Do not purchase, dz (a) If the probability that the rezoning will be approved is 0.5, what decision is recommended? Recommended Decision:- Select your answer - v What is the expected profit? Enter your answer in dollars. For example, an answer of $200 thousands should be entered as 200,000. (b) The investor can purchase an option to buy the land. Under the option, the investor maintains the rights to purchase the land anytime during the next three months while learning more about possible resistance to the rezoning proposal from area residents. Probabilities are as follows: Let H- High resistance rezoning L- Low resistance to rezoning P(H) = 0.55 P(s: | H) = 0.18 P(s2 | H) = 0.82 P(L) = 0.45 P(s1: 14) = 0.87 P(s21) = 0.13 What is the optimal decision strategy if the investor uses the option period to learn more about the resistance from area residents before making the purchase decision? High resistance: - Select your answer - Low resistance: Select your answer- (c) If the option will cost the investor an additional $10,000, should the investor purchase the option? The investor- Select your answer - v purchase this option, as the payoff of the investing in it is - Select your answer - v than $10,000 dollars. What is the maximum that the investor should be willing to pay for the option? Enter your answer in dollars. For example, an answer of $200 thousands should be entered as 200,000.

A real estate investor has the opportunity to purchase land currently zoned as residential. If the county board approves a request to rezone the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. However, if the zoning change is not approved, the investor will have to sell the property at a loss. Profits (in thousands of dollars) are shown in the following payoff table: State of Nature tions Navigation Menu Rezoning Approved Rezoning Not Approved Decision Alternative S1 52 Purchase, di 610 -190 Do not purchase, dz (a) If the probability that the rezoning will be approved is 0.5, what decision is recommended? Recommended Decision:- Select your answer - v What is the expected profit? Enter your answer in dollars. For example, an answer of $200 thousands should be entered as 200,000. (b) The investor can purchase an option to buy the land. Under the option, the investor maintains the rights to purchase the land anytime during the next three months while learning more about possible resistance to the rezoning proposal from area residents. Probabilities are as follows: Let H- High resistance rezoning L- Low resistance to rezoning P(H) = 0.55 P(s: | H) = 0.18 P(s2 | H) = 0.82 P(L) = 0.45 P(s1: 14) = 0.87 P(s21) = 0.13 What is the optimal decision strategy if the investor uses the option period to learn more about the resistance from area residents before making the purchase decision? High resistance: - Select your answer - Low resistance: Select your answer- (c) If the option will cost the investor an additional $10,000, should the investor purchase the option? The investor- Select your answer - v purchase this option, as the payoff of the investing in it is - Select your answer - v than $10,000 dollars. What is the maximum that the investor should be willing to pay for the option? Enter your answer in dollars. For example, an answer of $200 thousands should be entered as 200,000.

Algebra & Trigonometry with Analytic Geometry

13th Edition

ISBN:9781133382119

Author:Swokowski

Publisher:Swokowski

Chapter10: Sequences, Series, And Probability

Section10.3: Geometric Sequences

Problem 81E

See similar textbooks