In Problems 9-12, use the given transition matrix and the initial probability vector to find the second probability vector (two steps after the initial probability vector).
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Chapter 7 Solutions
Mathematical Applications for the Management, Life, and Social Sciences
- If a game gives payoffs of $10 and $100 with probabilities 0.9 and 0.1, respectively, then the expected value of this game is E=0.9+0.1= .arrow_forwardThe weather in the Magical Land of Oz only depends on the weather from the previous day. There are four possible weather patters: Sunny, Raining, Foggy, and Hailing. The probability transition matrix is given 1: below. S R F H S 1 R 1/2 1/4 1/4 F 1/4 3/4 H 0 0 1/4 3/4 1. If it is Raining today, what is the weather forecast for tomorrow? 2. If it is Raining today, what is the weather forecast for a week from today? 3. If it is Raining today, what is the weather forecast for a year from today? 4. If it is Raining today, what is the weather forecast for ten years from today? 5. Find the stable state vector.arrow_forwardc. The market share of two companies A and B is 30% and 70% in the current time period. The information obtained in terms of the customer loss and retention is given by the matrix P. [0.3 0.2] P = Lo.7 0.8] i.Determine the transition probability matrix in the 1st and 2nd month. ii.What is the steady state of the two companies?arrow_forward
- A investment company has an asset A that will produce a cash flow of $5.500 with prob. 0.3 and $8,800 with prob. 0.7. They also own an asset B that pays $1,550 with prob. 0.5 and $3.500 with prob. 0.50. In this case, the probability that the company will earn a total payoff of $10,350 from their portfolio of assets is and the expected value of this portfolio is_ O a15: $10.335 O 0.15: $10885 O 035: $1088S O 035, $10.33sarrow_forward12arrow_forwardThe Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $7,000 and has an expected life of 3 years. Annual project cash flows begin 1 year after the initial investment and are subject to the following probability distributions: Project A Probability Cash Flows 0.2 0.6 0.2 $6,500 $7,000 $7,500 Project B Probability Cash Flows 0.2 0.6 $7,000 $17,000 BPC has decided to evaluate the riskier project at 11% and the less-risky project at 8%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. 0.2 $0 Open spreadsheet a. What is each project's expected annual cash flow? Round your answers to two decimal places. Project A: $ Project B: $ Project B's standard deviation (0g) is $5,425.86 and its coefficient of variation (CVB) is 0.71. What are the values of (0) and (CV)? Round your answers to two decimal places. CVA = b. Based on the risk-adjusted NPVs,…arrow_forward
- Draw the transition probability graph and construct the transition probability matrix of the following problems. 2. A police car is on patrol in a neighborhood known for its gang activities. During a patrol, there is a 60% chance of responding in time to the location where help is needed; else regular patrol will continue. chance for cancellation (upon receiving a call, there is a 10% in which case normal patrol is resumed) and a 30% chance that the car is already responding to a previous call. When the police car arrives at the scene, there is a 10% chance that the instigators will have fled (in which case the car returns back to patrol) and a 40% chance that apprehension is made immediately. Else, the officers will search the area. If apprehension occurs, there is a 60% chance of transporting the suspects to the police station; else they are released and the car returns to patrol.arrow_forwardTo generate leads for new business, Gustin Investment Services offers free financial planning seminars at major hotels in Southwest Florida. Gustin conducts seminars for groups of 25 individuals. Each seminar costs Gustin $3,400, and the commission for each new account opened is $4,900. Gustin estimates that for each individual attending the seminar, there is a 0.01 probability that he/she will open a new account. (a) Determine the equation for computing Gustin's profit per seminar, given static values of the relevant parameters. Profit = (New Accounts Opened x (b) What type of random variable is the number of new accounts opened? (Hint: Review Appendix 11.1 for descriptions of various types of probability distributions.) O uniform random variable O poisson random variable O hypergeometric random variable O binomial random variable O normal random variable (c) Construct a simulation model to analyze the profitability of Gustin's seminars. Would you recommend that Gustin continue…arrow_forward1. For determining the monthly premiums of their customers, an automobile insurance company classifies drivers into 3 classes: Good drivers (G), medium-level drivers (M) and bad drivers (B). The percentage of drivers in each class is as follows: Class G: 25%, Class M: 60%, Class B: 15%. The probabilities that a driver in each of these classes will have an accident in one year are given as follows: For Class G = 0.005, for Class M= 0.025, for Class B=0.035 a) What is the probability that a driver has an accident within the first year? b) A driver purchasing an insurance policy has an accident within the first year. What is the probability that he/she was classified as a good driver (in Class G)?arrow_forward
- In this question you will find the steady-state probability distribution for the regular transistion matrix below with 3 states A, B, and C. A C 0.0 0.5 0.5 A В 0.2 0.4 0.4 0.25 0.5 0.25 Give the following answers as fractions OR as decimals correct to at least 5 decimal places. What is the long term probability of being in state A? What is the long term probability of being in state B? What is the long term probability of being in state C?arrow_forwardA customer always eats lunch either at restaurant A or restaurant B. • The customer never eats at A two days in a row. • If the customer eats at B one day, then the next day she is three times as likely to eat at B as at A. First, we construct the probability transition matrix for the problem. -80 [ = Initially, the customer is equally likely to eat at either restaurant, so Xo 12 -[1] =arrow_forwardSuppose that Phone A has a 20% market share initially, with Phone B having an 80% market share. The transition matrix to the right represents customers who currently own phones A and B and the probability that they will upgrade to a new phone A or B. Use this transition matrix to find the share for each phone after the following upgrades. A B A 0.8 0.2 B 0.25 0.75 (a) First upgrade (b) Second upgrade (c) Third upgrade (a) With the first upgrade, Phone A has % of the market and Phone B has % of the market. (Round your answers to two decimal places as needed.)arrow_forward
- College AlgebraAlgebraISBN:9781305115545Author:James Stewart, Lothar Redlin, Saleem WatsonPublisher:Cengage Learning