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Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter5: Probability: An Introduction To Modeling Uncertainty

Section: Chapter Questions

Problem 27P: Suppose we are interested in bidding on a piece of land and we know one other bidder is interested.1...

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In a certain game, suppose there is no cost to playing the game, and a player has a probability 0.07 of winning a prize worth $1,787 ,and a probability of 0.33 of winning another prize What is the expected payment of playing the game? (please do not round your worth $70 final answer, and enter it in the box provided below as is).
Suppose you won the lottery and had two options: (1) receiving $0.8 million or (2) taking a gamble in which, at the flip of a coin, you receive $1.6 million if a head comes up but receive zero if a tail comes up. What is the expected value of the gamble? Enter your answer in millions. For example, an answer of $500,000 should be entered as 0.5. Round your answer to one decimal place. $ million Would you take the sure $0.8 million or the gamble? If you chose the sure $0.8 million, would that indicate that you are a risk averter or a risk seeker? Suppose the payoff was actually $0.8 million - that was the only choice. You now face the choice of investing it in a U.S. Treasury bond that will return $856,000 at the end of a year or a common stock that has a 50-50 chance of being worthless or worth $1,920,000 at the end of the year. The expected profit on the T-bond investment is $56,000. What is the expected dollar profit on the stock investment? Round your answer to the nearest…
Suppose you won the lottery and had two options: (1) receiving$0.5 million or (2) taking a gamble in which, at the flip of a coin, you receive $1 million if ahead comes up but receive zero if a tail comes up.a. What is the expected value of the gamble?b. Would you take the sure $0.5 million or the gamble?c. If you chose the sure $0.5 million, would that indicate that you are a risk averter or arisk seeker?d. Suppose the payoff was actually $0.5 million—that was the only choice. You nowface the choice of investing it in a U.S. Treasury bond that will return $537,500 at theend of a year or a common stock that has a 50–50 chance of being worthless or worth$1,150,000 at the end of the year. 1. The expected profit on the T-bond investment is $37,500. What is the expected dollarprofit on the stock investment?2. The expected rate of return on the T-bond investment is 7.5%. What is the expectedrate of return on the stock investment?3. Would you invest in the bond or the stock? Why?4. Exactly…
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Consider a lottery where one with a probability of 0.4. Determine the Risk premium for a risk averse person who wants a probability of probability of 0.4. can either win $5,000 with a probability of 0.6 or lose $3,000 .75 for the expected reward. Also for a risk seeker who is satisfied with a
Let's say you make a bet on a coin toss, heads 5.938, tails 6.942. Disregarding the discount factor (you don't need to take the present value), what is the value (expected return) of this bet?
Assume that you are faced with an opportunity made up of three equally likely outcomes. If the first outcome occurs, you receive P1000. If the second outcome occurs, you receive no money. If the third outcome occurs, you must pay P100. Given that you can be characterized as risk neutral, how much would you pay to take this risk? Would you willing to pay more or less this opportunity?
Which of the following is not consistent with Prospect Theory decision making, If a suit and tie together cost $200, and the suit costs $180 more than the tie costs, many people would likely say the tie costs $20. O Sometimes people will take a risky gamble even if the odds are greater that they will lose more money than they can gain. O People always make the same decisions if the outcomes and consequences are always the same. O People sometimes make decisions that are incorrect if judgements take too much effort.
a) Plot the payoff and profit of the following options based strategy: Buy 3 puts with strike 100, sell 4 puts with strike 110 and buy 1 put with strike 140. Explain all your calculations. b) If the price of the put with strike 100 is $8 and the price of the put with strike 140 is $16, what can you say about the price of the put with strike 110? Explain
Person 1’s utility function for money is U = (M)0.5 . Person 2’s utility function for money is U = (M)0.25 .There is a gamble that you have 50% to get 2000$ and 50% get nothing. (a)What are these two people’s certainty equivalence of this gamble? (b)What are these two people’s risk premium of this gamble? (c)What are these two people’s probability premium of this gamble? (d)According to the result of above questions, can you judge which person is more risk averse
Related to the Economics in Practice on p. 202: If the estate in the Chekhov play Uncle Vanya is earning 2 percent, the interest rate in suitable securities is 5 percent, and the estate is a better risk than the securities, Select one: O a. more information is needed to determine which is the better investment. O b. the estate will not sell because the return is lower. the securities will not sell because the risk is higher. O d. the buyer would have no preference between the two investments.