tie4203-20-tut-10.pdf - TIE4203 Decision Analysis in Industrial Operations Management Tutorial#10 Question 1(P11.1(a Ella is risk neutral and is offered

tie4203-20-tut-10.pdf - TIE4203 Decision Analysis in...

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TIE4203 (2020) tut-10-1 TIE4203 Decision Analysis in Industrial & Operations Management Tutorial #10 Question 1 (P11.1) ( a ) Ella is risk neutral and is offered a dice tossing game: A fair dice is thrown and Ella will receive $100 x if the outcome is x points (where x = 1, 2, …, 6). What is Ella’s personal indifferent buying price for the game? ( b ) Suppose Ella can purchase the game in part ( a ) with an option to throw the dice again after making the first throw. If she does throw the dice again, and she will be paid based on the outcome of second throw. What is Ella’s personal indifferent buying price for the game with a re-throw option. What is the value of the re-throw option? ( c ) Suppose Ella can purchase the game in part ( a ) with options for up to two re-throws and she will be paid based on the outcome of the final throw. What is Ella’s personal indifferent buying price for the game with a two re-throw options? What is the value of the option with up to two re-throw?

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