A real estate investor has the opportunity to purchase land currently zoned 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 590 -160 Do not purchase, d2 0 0 If the probability that the rezoning will be approved is 0.5, what decision is recommended? Recommended decision = What is the expected profit? Expected profit = $ fill in the blank 2 thousands. 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 to rezoning L = Low resistance to rezoning P(H) = 0.51 P(S1 | H) = 0.17 P(S2 | H) = 0.83 P(L) = 0.49 P(S1 | L) = 0.88 P(S2 | L) = 0.12 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: Low resistance: If the option will cost the investor an additional $10,000, should the investor purchase the option? What is the maximum that the investor should be willing to pay for the option? Round your answer to three decimal places. Why or why not? EVSI = $ fill in the blank 6 thousands.
A real estate investor has the opportunity to purchase land currently zoned 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 590 -160 Do not purchase, d2 0 0 If the probability that the rezoning will be approved is 0.5, what decision is recommended? Recommended decision = What is the expected profit? Expected profit = $ fill in the blank 2 thousands. 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 to rezoning L = Low resistance to rezoning P(H) = 0.51 P(S1 | H) = 0.17 P(S2 | H) = 0.83 P(L) = 0.49 P(S1 | L) = 0.88 P(S2 | L) = 0.12 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: Low resistance: If the option will cost the investor an additional $10,000, should the investor purchase the option? What is the maximum that the investor should be willing to pay for the option? Round your answer to three decimal places. Why or why not? EVSI = $ fill in the blank 6 thousands.
A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
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Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...
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A real estate investor has the opportunity to purchase land currently zoned 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 | 590 | -160 |
| Do not purchase, d2 | 0 | 0 |
- If the probability that the rezoning will be approved is 0.5, what decision is recommended?
Recommended decision =
What is the expected profit?
Expected profit = $ fill in the blank 2 thousands. - 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 to rezoning L = Low resistance to rezoning P(H) = 0.51 P(S1 | H) = 0.17 P(S2 | H) = 0.83 P(L) = 0.49 P(S1 | L) = 0.88 P(S2 | L) = 0.12
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:
Low resistance: - If the option will cost the investor an additional $10,000, should the investor purchase the option?
What is the maximum that the investor should be willing to pay for the option? Round your answer to three decimal places. Why or why not?
EVSI = $ fill in the blank 6 thousands.
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If the option will cost the investor an additional $10,000, should the investor purchase the option?
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