DEMAND LOW HIGH Alternative 1 $10,000 $ 5,000 -$ 2,000 $30,000 Alternative 2 $40,000 Alternative 3 $50,000 The probability of low demand is 0.4, whereas the probability of high demand is 0.6. a) What is the highest possible expected monetary value? b) What is the expected value with perfect information (EVWPI)? c) Calculate the expected value of perfect information for this situation. PX
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- 3. What would be the yearly premium for a $50,000 insurance policy against accidental household flood if the likelihood of an accidental household flood is estimated to be 0.005 and the company wishes to have a yearly expected gain of $2000? a. $2, 250. b. $2,550. c. $2,500. d. $2,520. 4. A manufacturer of electronic equipment buys spare parts for replacement and repairs in lots of one-thousand from the supplier. The manufacturer uses these spare parts to fix items under warrantee. Past historical records show that the probability of any one spare part being defective is unlikely and assumed to be one in one-thousand. In a shipment of one-thousand spare parts the probability of two defectives is a. 0.148. b. 0.184. c. 0.366. d. 0.386. 5. What is the probability of getting exactly three heads in five flips of a balance coin? a. 5/16 b. 3/16 c. 7/16 d. 9/16Rick Miller has just opened a new bakery in Frisco, Colorado, called Morning Fresh. In performing an economic analysis, Rick has determined that the marginal cost or loss for each dozen doughnuts sold is $4. The marginal profit is estimated to be $2.75 per dozen doughnuts. At this time, Rick is considering stocking 10, 15, 20, 25 or 30 dozen doughnuts. The probability of selling 10 dozen doughnuts is 10%. The chance of selling 15 Dozen doughnuts is 20%. There is a 30% chance that Morning Fresh will sell either 20 or 25 dozen doughnuts. Finally, there is a 10% chance of selling 30 dozen doughnuts, which is considered by Rick to be the most that Morning Fresh would be able to accommodate. What is your recommendation to Rick ?The ABC Company is involved in the production and selling of consumer goods, particularly beauty products such as bath soap and shampoo and had registered a positive profit growth for the last 10 years. However, the current year seems to be different from those years as the company is expecting a decline in profit; which is estimated to be about 70% below the target. The manager now is in a dilemma … asking himself/herself “What happened, why this decline in profit?” The Manager then asked the company Accountant to give him/her the data on sales and advertising cost for the last 10 years – he/she wants these data to determine whether the company can live without advertising, as advertising cost happens to be substantial. Justify your answer by doing as step-by-step procedure in Correlation Analysis using a 0.05 level of significance. The data are as follows –
- Suppose that you just bought a painting for $1million. You plan to sell it exactly one year fromnow. You don’t know what the exact price will bewhen you sell. Nevertheless, you believe thatthere’s a 65% chance that you can sell it for$1.2million, and a 35% chance that you can sell itfor only $900,000. What is your expected gain orloss for this investment?Data on the 30 largest bond funds provided one-year and five-year percentage returns for theperiod ending March 31, 2000 (The Wall Street Journal, April 10, 2000). Suppose we consider aone-year return in excess of 2% to be high and a five-year return in excess of 44% to be high.One-half of the funds had a one-year return in excess of 2%, 12 of the funds had a five-yearreturn in excess of 44%, and six of the funds had both a one-year return in excess of 2% and afive-year return in excess of 44%.a. Find the probability of a fund having a high one-year return, the probability of a fundhaving a high five-year return, and the probability of a fund having both a high one-yearreturn and a high five-year return.b. What is the probability that a fund had a high one-year return or a high five-year returnor both?c. What is the probability that a fund had neither a high one-year return nor a high fiveyear return?Suppose that a life insurance company insures 1 million 50-year-old people in a given year. (Assume a death rate of 5 per 1000 people.) The cost of the premium is $200 per year, and the death benefit is $50,000 What is the expected profit or loss for the insurance company?
- 2. The following situation arises in various situations such as when you are a homeowner. Suppose you face a random loss L in the coming year. You can purchase insurance against the loss L; the premium is double what the insurance company expects to pay out. (This price is in the ballpark of what reputable insurance companies charge. When you're offered an extended warranty or similar product, e.g., when purchasing an electronic device, the premium can be worse; e.g., 15 or 20 times your expected loss.) Let's assume that your loss L will be $1000 with probability 1/10, $100,000 with probability one in ten thousand, and $1,000,000 with probability one in a million; otherwise, your loss is 0. (a) If you purchase full coverage against the loss L, what is your premium? (b) Usually, the expensive part of insurance is insuring against small losses, and I've selected the p.m.f. of L to reflect this behavior. Assume that a loss of $5,000 would be painful to you and much more than $5,000 would…An investor is concerned with the market return for the coming year, where the market return is defined as the percentage gain (or loss, if negative) over the year. The investor believes there are five possible scenarios for the national economy in the coming year: rapid expansion, moderate expansion, no growth, moderate contraction, and serious contraction. Furthermore, she has used all of the information available to her to estimate that the market returns for these scenarios are, respectively, 23%, 18%, 15%, 9%, and 3%. That is, the possible returns vary from a high of 23% to a low of 3%. Also, she has assessed that the probabilities of these outcomes are 0.12, 0.40, 0.25, 0.15, and 0.08. Use this information to describe the probability distribution of the market return. Compute the following for the probability distribution of the market return for the coming year.: 1. Mean, 2. Variance, 3. Standard deviation Show your solutions.The recent economic downturn resulted in the loss of jobs and an increase in delinquentloans for housing. In projecting where the real estate market was headed in the comingyear, economists studied the relationship between the jobless rate and the percentage ofdelinquent loans. The expectation was that if the jobless rate continued to increase, therewould also be an increase in the percentage of delinquent loans. The following data showthe jobless rate and the delinquent loan percentage for 27 major real estate markets. a. Compute the correlation coefficient. Is there a positive correlation between the joblessrate and the percentage of delinquent housing loans? What is your interpretation?b. Show a scatter diagram of the relationship between the jobless rate and the percentage
- Q. No. 3. To the Board of Revenue , the deductions depends on the taxpayer’s adjusted gross income. Large deductions, which include charity and medical deductions, are more reasonable for taxpayers with large adjusted gross incomes. If a taxpayer claims larger than average itemized deductions for a given level of income, the chances of an audit are increased. Data (in thousands of dollars) on adjusted gross income and the average or reasonable amount of itemized deductions are as follows: a. Develop a scatter diagram with adjusted gross income as the independent variable.b. Determine the correlation coefficient.c. Determine the standard error of estimated. Determine the coefficient of determination and interpret it.e. At the .05 significance level, is it reasonable to conclude that there is a positive relationship between the variables? What is the p-value?f. Develop the estimated regression equation.g. Estimate a reasonable level of total itemized deductions for a taxpayer with an…A professor, transferred from Toronto to New York, needs to sell his house in Toronto quickly. Someone has offered to buy his house for $220,000, but the offer expires at the end of the week. The professor does not currently have a better offer but can afford to leave the house on the market for another month. From conversations with his realtor, the professor believes the price he will get by leaving the house on the market for another month is uniformly distributed between $210,000 and $235,000.If he leaves the house on the market for another month, what is the probability that he will get at least $225,000 for the house?If he leaves it on the market for another month, what is the probability he will get less than $217,000?What is the expeted value and standard deviation of the house price if it is left in the market? solve in excel if possible!