9. The East Chester Tribune must decide whether to publish a Sunday edition.The publisher thinks the probability is 0.6 that a Sunday edition would be asuccess and 0.4 that it would be a failure. If it is a success, she will gain$100,000. If it is a failure, she will lose $80,000.a. Construct a decision tree corresponding to the problem, and use backwardinduction to solve the problem. (Assume that the publisher is risk-neutral.)b. List all forks in the decision tree you constructed; then indicate whethereach is a decision fork or a chance fork and state why.

Decision-making is related to publishing the Sunday edition of The East Chester Tribune. There are…

Answered: 9. The East Chester Tribune must decide…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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1. If today stock is trading for $60 a share. You are confident that the stock price will experience a change in the value of over 30% relative to the current price in either upward or downward direction over the course of next year. Today you decide to transact in either one or two stocks maturing in one year. The strike price of both options is $60 a share. The call option premium is $6 and put option premium is $5. Given this information and your belief, you should _______. a. buy 2 calls b. buy 1 call and sell 1 put c. sell 1 call and 1 sell put d. buy 1 call and buy 1 put e. sell 2 puts Please explain
1) A decision maker using an exponential utility function would prefer a random payoff with an expected value of X to a certain payoff of X. True False 2) In a decision tree, a circular node indicates a point where a random event occurs. True False 3) The optimistic and conservative approaches to decision making will always give the same result. True False
Emma can either buy a used car or buy a new car. The used car costs $12,800 with a 40% chance she will run into mechanical problems that will cost $3500 to repair. The new car costs $17,595. Also, there is an 8% chance she will get into an accident in the next 5 years, which will cost 20% of the value of her car. If the cost of the accident is greater than $5000 she would only pay a deductible of $3000. What is the expected value of buying a new car? What is the expected value of buying a used car? Draw a probability tree.
Stocks with high market betas have higher expected returns than stocks with low market betas. This evidence is inconsistent withI. The weak form efficient market hypothesisII. The semi-strong form efficient market hypothesisIII. The strong form efficient market hypothesis a) I, II, and III b) I and II c) I d) None of I, II, and III
The company’s marketing manager estimates that there is a 60% chance that demand will rise faster than the current rate, a 30% chance that it will continue to rise at the current rate and a 10% chance that it will increase at a slower rate or fall. Assuming that the company’s objective is to maximize expected net present value, determine (a)The course of action which it should take (b)The expected value of perfect information.
You are attempting to establish the utility that your boss assigns to a payoff of $1,200. You have established that the utility for a payoff of $0 is zero and the utility for a payoff of $10,000 is one. Your boss has just told you that they would be indifferent between a payoff of $1,200 and a lottery which has a payoff of $10,000 where the probability of losing is 0.9. What is your boss' utility for $1,200? (Round your answer to 1 decimal place.) Utility of $1,200
At the beginning of each day, a patient in the hospital is classifed into one of the three conditions: good, fair or critical. At the beginning of the next day, the patient will either still be in the hospital and be in good, fair or critical condition or will be discharged in one of three conditions: improved, unimproved, or dead. The transistion probabilities for this situation are Good Fair Critical Good 0.65 0.20 0.05 Fair 0.50 0.30 0.12 Critical 0.51 0.25 0.20 Improved Unimproved Dead Good 0.06 0.03 0.01 Fair 0.03 0.02 0.03 Critical 0.01 0.01 0.02 For example a patient who begins the day in fair condition has a 12% chance of being in critical condition the next day and a 3%…
A television station may either extend a current television show for another season or develop a completely new show for that time slot. It will cost $6M to develop the new show. The new show may be very successful, moderately successful, or not successful with associated advertising revenues of $25M, $15M, or $5M, respectively. If the station chooses to extend the current show, it will cost $2M. The extended show may be very successful, moderately successful, or not successful with associated advertising revenues of $15M, $10M, or $5M, respectively. Which of the following are true? A. There are a total of six branches in the entire decision tree. B. There are eight leaves or terminal nodes in the entire decision tree. C. There is one event node in the decision tree. D. None of the above
Larry’s Bakery operates a chain of ten high-end bakeries. Larry, the owner of these amazing bakeries, is looking at two options to increase his revenues throughout his chain of bakeries. The first option is to launch a loyalty card. Doing this would cost Larry $500,000. The probability that this would result in high sales is 0.6, which means the probability it would result in low sales is 0.4. If high sales are generated from this option, Larry can expect to see additional revenues of $1,000,000. If low sales are generated from this option, Larry can expect to see additional revenues of only $750,000. The second option Larry has is to cut the prices throughout his bakeries. Doing so would cost him $300,000. The probability that this would result in high sales is 0.8. If doing this results in high sales, Larry can expect to see additional revenues of $800,000. If it results in low sales, he can expect to see additional revenues of only $500,000. Larry obviously has a tough decision…
2
Do the following problems using either TreePlan A student is deciding which scholarships (out of two) to accept. The first scholarship is worth $10,000 but carries the condition that recipients cannot accept another other forms of income (such as other scholarships). The second scholarship is awarded in a competition, where this student has a 50% chance of earning $7,000, a 40% chance of earning $10,000, and a 10% chance of earning $15,000. The student must inform the administrator of the first scholarship whether she will be accepting their offer today. A. Develop a decision tree to determine which scholarship this student should accept (using our normal decision criteria). B. Under what circumstance might the student accept the other scholarship?
A product manager at Clean & Brite (C&B) wants to determine whether her company should market a new brand of toothpaste. If this new product succeeds in the marketplace, C&B estimates that it could earn $1,800,000 in future profits from the sale of the new toothpaste. If this new product fails, however, the company expects that it could lose approximately $750,000. If C&B chooses not to market this new brand, the product manager believes that there would be little, if any, impact on the profits earned through sales of C&B’s other products. The manager has estimated that the new toothpaste brand will succeed with probability 0.50. Before making her decision regarding this toothpaste product, the manager can spend $75,000 on a market research study. Based on similar studies with past products, C&B believes that the study will predict a successful product, given that product would actually be a success, with probability 0.75. It also believes that the study will…

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