Assignment_Decision_Analysis - Quantitative Methods for...

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Quantitative Methods for Business Name: NGÔ TH KIM NGÂN ID: BABAIU15103 ASSIGNMENT 02 Decision analysis: 3.19; 3.20, 3.21, 3.24, 3.25 3.19) Equipment Favorable market ($) Unfavorable market ($) Sub 100 300,000 -200,000 Oiler J 250,000 -100,000 Texan 75,000 -18,000 Probability 0.7 0.3 a) Decision model is decision making under risk with the highest expected monetary value b) EMV (Sub 100) = 300,000x0.7 +(-200,000)x0.3=150,000 EMV (Olier J) = 250,000x0.7 +(-100,000)x0.3=145,000 EMV (Texan) = 75,000x0.7 +(-18,000)x0.3=47,100 Optimal decision is the highest EMV, which is equal to 150,000 c) Because this figure have to be less than part (b), Ken would change decision if EMV(Sub 100) < 145,000. Let X be the payoff of Sub 100 in the favorable market. We have: 0.7x(X) + (-200,000)x0.3 < 145,000 X < 292,857.14 3.20) State of nature Decision alternative Good economy Poor economy Stock market 80,000 -20,000 Bonds 30,000 20,000 CDs 23,000 23,000 Probability 0.5 0.5 Maximum in column 80,000 23,000 a) The expected monetary value (EMV) for each of alternative is EMV (Stock market) = 0.5x80,000+(-20,000)x0.5=30,000 EMV (Bonds) = 0.5x30,000+20,000x0.5=25,000 1
Quantitative Methods for Business EMV (CDs) = 0.5x23,000+23,000x0.5=23,000 Thus, Mickey will invest into stock market to maximize expected monetary value.

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