Exhibit 15-2. You would like to invest in one of the three available investment plans: money market, bonds, or stocks. The payoffs (profits) of each plan under two possible future economic conditions, PE (poor economy) and GE (good economy) are shown below. The probability of the occurrence of PE is 0,4. PE GE Money Market Bonds 3000 3400 1500 3500 Stocks 2800 3800 Suppose that before making the investment decision, you consider hiring an economist who can provide either U = "unfavorable" or F = "favorable" report concerning the future economic conditions. Assume that the following probability information is also available: P(U|PE) = 0.7, P(F]PE) = 0.3 P(U|GE) = 0.1, P(F|GE) = 0.9. Refer to Exhibit 15-2. The expected value with perfect information is O a. 3456 O b.3400 O c. 3340 O d. 3480
Q: 3. The Miramar Company is going to introduce one of three new products: a widget, a hummer, or a…
A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and…
Q: I have a restaurant, but I don't know what demand will be next year. I need to decide whether to…
A: 1) Expected value of expanding if you expand EMV= sum of (probability of event) = (0.20 x…
Q: There are three investments, B1, B2 and B3. All of them have the same expected value and each with…
A: Given data is
Q: W. L. Brown, a direct marketer of women’s clothing,must determine how many telephone operators…
A: The aforementioned question is answered as below:
Q: Determine the optimal action based on the maximax criterion ii. Determine the optimal action based…
A: The investor who has certain amount of money to be invested, has assigned probability based on his…
Q: he probability that a mobile phone is stolen in an electronic shop is 0.0008. If 8500 mobile phones…
A: Quality refers to the degree of excellence of something. Quality has some standard on the basis of…
Q: Ping Sotto, an Overseas Filipino Worker, is planning to return to the Philippines. As an OFW for…
A: The process of seeking out, finding, and hiring potential candidates for a specific position or…
Q: Maximus Steel plans to introduce one of three new products code-named: Wren, Hawk, and Nightingale.…
A: The expected value of each alternative given below: i) Profit favorable Wren $120,000 0.2…
Q: Suppose you are going to receive $20,000 per year for five years. The appropriate interest rate is 7…
A: a) The timeline for the ordinary annuity is: If the payments are in the form of an ordinary…
Q: n a bad economy, a CEO has a 4% chance of meeting earnings estimates at regular effort, and a 5%…
A: Probability of making sale ids 4% = 0.04 ANSWER : The cost for regular effort are zero Thus the…
Q: Hemmingway, Inc., is considering a $5 million research and development (R&D) project. Profit…
A: At Node 4, for building facility, the profit at high demand is 34 million with 0.5 probability, at…
Q: Many decision problems have the following simplestructure. A decision maker has two possible…
A: Consider a generalized decision maker's problem. The decision-maker has to decide between decision 1…
Q: The management of Brinkley Corporation is interested in using simulation to estimate the profit per…
A: Given data: Procurement Cost ($) Probability Labor cost Probability Transportation Cost…
Q: 1. The Yellow Cab Pizza wants to launch a new pizza variant next month. After deliberations with…
A: Given- Expected Value = Profit ×Probability pi.xi = pi× xi
Q: Ellie Daniels has $200,000 and is considering three mutual funds for investment—a global fund, an…
A: Please note that for the index fund, the net values are quoted for 2 years. For the other two, the…
Q: Formulate the situation as a system of inequalities. (Let x represent the number of dinghies the…
A: Given data is Available labor hours for metalwork = 108 Available labor hours for painting= 90…
Q: A manager is deciding whether to build a small or a large facility. Much depends on the future…
A: As mentioned in the table, based on the demand, the payoffs can be different for small or large…
Q: We have $1,000 to invest. All the money must be placedin one of three investments: gold, stock, or…
A:
Q: Private Insurance provides coverages that can be used to meet specific loss situations. For each of…
A: A. The type of insurance coverage will be "Payment Protection Insurance". This type of insurance…
Q: Consider a Markov chain with states 0,1,2 and the following transition probability matrix…
A: Given, 1/2 1/3 1/6 P= 0 1/3 2/3 1/2 0 1/2
Q: A forest consists of two types of trees: those that are 0–5 ft and those that are taller than 5 ft.…
A: Step 1: As each year 40% of all 0-5ft trees die and other 10% are sold. That means the probability…
Q: Consider an investment project with the following cash flows: N Cash…
A: Substitute, 9% as interest rate, according to trial and error method,
Q: The following payoff table shows a profit for a decision analysis problem with two decision…
A: Formula: Answer:
Q: ou have an option to build a new mall or remove it. A new mall will cost P500M as investment to…
A: THE ANSWER IS AS BELOW:
Q: A large steel manufacturing company has three options with regard to production: Produce…
A: A Small Introduction about manufacturing company Manufacturing is the large-scale manufacturing of…
Q: A person wants to invest in one of three alternative investment plans: stocks, bonds or a savings…
A: Following is the given information:
Q: a.) Draw a decision tree. b.) Determine the expected payoff for each decision and event node. c.)…
A: A Small Introduction about Demand Market interest structure the most essential ideas of financial…
Q: Two opposing armies, Red and Blue, must each decide whether to attack or defend. These decisions are…
A: Given, gains of one = loss of another this means probability of attack by one = probability of…
Q: Alexis Harrington received an inheritance of $95,000, and she is considering two speculative…
A: A small introduction about investment A venture is a resource or thing procured fully intent on…
Q: Pete is considering placing a bet on the NCAA playoffgame between Indiana and Purdue. Without any…
A: The calculation for EVSI is:
Q: At the beginning of each day, a patient in the hospital is classifed into one of the three…
A: Below is the solution:-
Q: A start-up company, Macrotech, plans to produce a device to translate Morse codeto a written message…
A: Given that, Initial Cost = $30,000 Selling Price SP= $85 Cost Price = $20
Q: Over the next three years, the expected path of 1-year interest rates is 4, 1, and 1 percent, and…
A: Expected path of interest rate is 1,2,1 percent. Premia are 0,0.2 and 0.5 percent.
Q: The Smiths save £32,000 per year for retirement. They are now in their mid-thirties, and they expect…
A:
Q: Eunice, in The scenario, wants to determine how each of the 3 companies will decide on possible new…
A: Given data: If a company will launch Product 1 - Gain 125,000 when successful - Lose 125,000 when…
Q: In the time interval between t and t 1 seconds beforethe departure of Braneast Airlines Flight 313,…
A: The capacity of Flight is 100 passengers Duration is (t tp t-1) seconds the reservation probability…
Q: 10. An investor must decide between two alternative investments-stocks and bonds. The return for…
A: A payoff table refers to a table that can be used to represent and analyze a scenario that has a…
Q: Assume that the Wisconsin Cheese Factory currently operates a large facility in Madison, WI. The…
A: risk avoidance
Q: The management of Brinkley Corporation is interested in using simulation to estimate the profit per…
A: Here the unit formula is given by --> Unit profit =Unit revenue - (Procurement +Lbour +…
Q: Maximize P=x1+2x2+x3, Subject to: 3x1+x2+x3≤4 x1+x2+2x3≤4 x1,x2,x3≥0
A: Formula:
Q: Steve Johnson believes that this winter is going to be extremely rainy, and he is trying to decide…
A: Please find the attached excel working in below step-
Q: Bugs Bunny and Daffy Duck are contestants on a game show called Split or Steal. On the show, Bugs…
A: The answer is as below:
Q: If An investor is considering investing in two securities A and B which promise a return of (10+X)%…
A: SOLUTION:
Q: What is the probability that the satellite described in Solved Problem 4 will fail between 5 and…
A: P (5 years < failure< 12 years) = P (failure after 5 years) - P (failure after 12 years) Using…
Q: An investor has a certain amount of money available to invest now. Three alternative investments are…
A: Hello thank you for the question. As per guidelines, we would provide only first three sub-parts at…
Q: Alexis Harrington received an inheritance of $95,000, and she is considering two speculative…
A: a) Let L and C be the amount to be invested in Land and Cattle respectively. Max 1.2L+1.3C s.t. L+C…
Q: Maximus Steel plans to introduce one of three new products code-named: Wren, Hawk, and Nightingale.…
A: 1.
Q: The table below shows the net income for several choices (choice 1, choice 2, and choice 3) if…
A: Given data: Choice Outcome 1 Outcome 2 Outcome 3 1 65 83 62 2 69 70 73 3 84 82 63…
F2
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- Suppose you currently have a portfolio of three stocks, A, B, and C. You own 500 shares of A, 300 of B, and 1000 of C. The current share prices are 42.76, 81.33, and, 58.22, respectively. You plan to hold this portfolio for at least a year. During the coming year, economists have predicted that the national economy will be awful, stable, or great with probabilities 0.2, 0.5, and 0.3. Given the state of the economy, the returns (one-year percentage changes) of the three stocks are independent and normally distributed. However, the means and standard deviations of these returns depend on the state of the economy, as indicated in the file P11_23.xlsx. a. Use @RISK to simulate the value of the portfolio and the portfolio return in the next year. How likely is it that you will have a negative return? How likely is it that you will have a return of at least 25%? b. Suppose you had a crystal ball where you could predict the state of the economy with certainty. The stock returns would still be uncertain, but you would know whether your means and standard deviations come from row 6, 7, or 8 of the P11_23.xlsx file. If you learn, with certainty, that the economy is going to be great in the next year, run the appropriate simulation to answer the same questions as in part a. Repeat this if you learn that the economy is going to be awful. How do these results compare with those in part a?You now have 10,000, all of which is invested in a sports team. Each year there is a 60% chance that the value of the team will increase by 60% and a 40% chance that the value of the team will decrease by 60%. Estimate the mean and median value of your investment after 50 years. Explain the large difference between the estimated mean and median.In Example 11.1, the possible profits vary from negative to positive for each of the 10 possible bids examined. a. For each of these, use @RISKs RISKTARGET function to find the probability that Millers profit is positive. Do you believe these results should have any bearing on Millers choice of bid? b. Use @RISKs RISKPERCENTILE function to find the 10th percentile for each of these bids. Can you explain why the percentiles have the values you obtain?
- W. L. Brown, a direct marketer of womens clothing, must determine how many telephone operators to schedule during each part of the day. W. L. Brown estimates that the number of phone calls received each hour of a typical eight-hour shift can be described by the probability distribution in the file P10_33.xlsx. Each operator can handle 15 calls per hour and costs the company 20 per hour. Each phone call that is not handled is assumed to cost the company 6 in lost profit. Considering the options of employing 6, 8, 10, 12, 14, or 16 operators, use simulation to determine the number of operators that minimizes the expected hourly cost (labor costs plus lost profits).In August of the current year, a car dealer is trying to determine how many cars of the next model year to order. Each car ordered in August costs 20,000. The demand for the dealers next year models has the probability distribution shown in the file P10_12.xlsx. Each car sells for 25,000. If demand for next years cars exceeds the number of cars ordered in August, the dealer must reorder at a cost of 22,000 per car. Excess cars can be disposed of at 17,000 per car. Use simulation to determine how many cars to order in August. For your optimal order quantity, find a 95% confidence interval for the expected profit.Based on Babich (1992). Suppose that each week each of 300 families buys a gallon of orange juice from company A, B, or C. Let pA denote the probability that a gallon produced by company A is of unsatisfactory quality, and define pB and pC similarly for companies B and C. If the last gallon of juice purchased by a family is satisfactory, the next week they will purchase a gallon of juice from the same company. If the last gallon of juice purchased by a family is not satisfactory, the family will purchase a gallon from a competitor. Consider a week in which A families have purchased juice A, B families have purchased juice B, and C families have purchased juice C. Assume that families that switch brands during a period are allocated to the remaining brands in a manner that is proportional to the current market shares of the other brands. For example, if a customer switches from brand A, there is probability B/(B + C) that he will switch to brand B and probability C/(B + C) that he will switch to brand C. Suppose that the market is currently divided equally: 10,000 families for each of the three brands. a. After a year, what will the market share for each firm be? Assume pA = 0.10, pB = 0.15, and pC = 0.20. (Hint: You will need to use the RISKBINOMLAL function to see how many people switch from A and then use the RISKBENOMIAL function again to see how many switch from A to B and from A to C. However, if your model requires more RISKBINOMIAL functions than the number allowed in the academic version of @RISK, remember that you can instead use the BENOM.INV (or the old CRITBENOM) function to generate binomially distributed random numbers. This takes the form =BINOM.INV (ntrials, psuccess, RAND()).) b. Suppose a 1% increase in market share is worth 10,000 per week to company A. Company A believes that for a cost of 1 million per year it can cut the percentage of unsatisfactory juice cartons in half. Is this worthwhile? (Use the same values of pA, pB, and pC as in part a.)
- A European put option allows an investor to sell a share of stock at the exercise price on the exercise data. For example, if the exercise price is 48, and the stock price is 45 on the exercise date, the investor can sell the stock for 48 and then immediately buy it back (that is, cover his position) for 45, making 3 profit. But if the stock price on the exercise date is greater than the exercise price, the option is worthless at that date. So for a put, the investor is hoping that the price of the stock decreases. Using the same parameters as in Example 11.7, find a fair price for a European put option. (Note: As discussed in the text, an actual put option is usually for 100 shares.)A common decision is whether a company should buy equipment and produce a product in house or outsource production to another company. If sales volume is high enough, then by producing in house, the savings on unit costs will cover the fixed cost of the equipment. Suppose a company must make such a decision for a four-year time horizon, given the following data. Use simulation to estimate the probability that producing in house is better than outsourcing. If the company outsources production, it will have to purchase the product from the manufacturer for 25 per unit. This unit cost will remain constant for the next four years. The company will sell the product for 42 per unit. This price will remain constant for the next four years. If the company produces the product in house, it must buy a 500,000 machine that is depreciated on a straight-line basis over four years, and its cost of production will be 9 per unit. This unit cost will remain constant for the next four years. The demand in year 1 has a worst case of 10,000 units, a most likely case of 14,000 units, and a best case of 16,000 units. The average annual growth in demand for years 2-4 has a worst case of 7%, a most likely case of 15%, and a best case of 20%. Whatever this annual growth is, it will be the same in each of the years. The tax rate is 35%. Cash flows are discounted at 8% per year.Based on Kelly (1956). You currently have 100. Each week you can invest any amount of money you currently have in a risky investment. With probability 0.4, the amount you invest is tripled (e.g., if you invest 100, you increase your asset position by 300), and, with probability 0.6, the amount you invest is lost. Consider the following investment strategies: Each week, invest 10% of your money. Each week, invest 30% of your money. Each week, invest 50% of your money. Use @RISK to simulate 100 weeks of each strategy 1000 times. Which strategy appears to be best in terms of the maximum growth rate? (In general, if you can multiply your investment by M with probability p and lose your investment with probability q = 1 p, you should invest a fraction [p(M 1) q]/(M 1) of your money each week. This strategy maximizes the expected growth rate of your fortune and is known as the Kelly criterion.) (Hint: If an initial wealth of I dollars grows to F dollars in 100 weeks, the weekly growth rate, labeled r, satisfies F = (I + r)100, so that r = (F/I)1/100 1.)