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 Rezoning Approved Rezoning Not Approved Decision Alternative s1 s2 Purchase, d1 600 -200 Do not purchase, d2 0 0 (a) If the probability that the rezoning will be approved is 0.5, what decision is recommended? Recommended Decision: What is the expected profit? 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 Rezoning Approved Rezoning Not Approved Decision Alternative s1 s2 Purchase, d1 600 -200 Do not purchase, d2 0 0 (a) If the probability that the rezoning will be approved is 0.5, what decision is recommended? Recommended Decision: What is the expected profit? Enter your answer in dollars. For example, an answer of $200 thousands should be entered as 200,000.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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 | ||
| Rezoning Approved | Rezoning Not Approved | |
| Decision Alternative | s1 | s2 |
| Purchase, d1 | 600 | -200 |
| Do not purchase, d2 | 0 | 0 |
| (a) | If the probability that the rezoning will be approved is 0.5, what decision is recommended? |
| Recommended Decision: | |
| What is the expected profit? Enter your answer in dollars. For example, an answer of $200 thousands should be entered as 200,000. | |
| $ |
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