Use the information given below to answer the following questions). Below is a payoff table that lists three mortgage options: \[\begin{array} { | l | l | l | l | } \hline & { \text { Outcome } } \\ \hline \text { Decision } & \text { Rates Rise } & \text { Rates Stable } & \text { Rates Fall } \\ \hline \text { 2-year ARM } & \$ 66,645 & \$ 43,650 & \$ 38,560 \\ \hline \text { 5-year ARM } & \$ 62,857 & \$ 47,698 & \$ 42,726 \\ \hline \text { 25-year fixed } & \$ 52,276 & \$ 52,276 & \$ 52,276 \\ \hline \end{array}\] -What is the maximum opportunity loss incurred for the 2-year ARM?

A) $ 8,626 B) $ 13,716 C) $ 14,369 D) $ 10,581 A) $ 8,626 B) $ 13,716 C) $ 14,369 D) $ 10,581 C

Use the information below to answer the following questions). Below is a payoff table that lists four mortgage options: \[\begin{array} { | l | l | l | l | } \hline & { \text { Outcome } } \\ \hline \text { Decision } & \text { Rates Rise } & \text { Rates Stable } & \text { Rates Fall } \\ \hline \text { 1-year ARM } & \$ 66,645 & \$ 43,650 & \$ 38,560 \\ \hline \text { 3-year ARM } & \$ 62,857 & \$ 47,698 & \$ 42,726 \\ \hline \text { 5-year ARM } & \$ 55,895 & \$ 50,894 & \$ 48,134 \\ \hline \text { 30-year fiXed } & \$ 52,276 & \$ 52,276 & \$ 52,276 \\ \hline \end{array}\] -An) is also called a minimax regret strategy.

A) opportunity-loss strategy B) aggressive strategy C) conservative strategy D) average payoff strategy A) opportunity-loss strategy B) aggressive strategy C) conservative strategy D) average payoff strategy

Use the information below to answer the following questions). Below are four options for an investment decision. \[\begin{array} { | l | l | l | l | } \hline \text { Decision/event } & \text { Rates Rise } & \text { Rates Stable } & \text { Rates Fall } \\ \hline \text { Bank CD } & \mathbf { 0 . 8 0 } & 0.80 & 0.80 \\ \hline \text { Bond fund } & - 0.75 & 0.86 & 1.50 \\ \hline \text { Index fund } & 0.00 & 0.90 & 1.20 \\ \hline \text { Growth fund } & - 0.30 & 0.70 & 1.40 \\ \hline \end{array}\] -Based on the average utility, which of the following is considered the best decision?

A) Bank CD B) Bond fund C) Index fund D) Growth fund A) Bank CD B) Bond fund C) Index fund D) Growth fund

Use the below information to answer the following questions). Below is a payoff table with three mortgage options: \[\begin{array} { | l | l | c | c | } \hline & &{ \text { Outcame } } \\ \hline \text { Probability } & { 0.6 } & { 0.3 } & { 0.1 } \\ \hline \text { Decision } & \text { Rates Rise } & \text { Rates Stable } & \text { Rates Fall } \\ \hline \text { 1-year ARM } & \$ 66,645 & \$ 43,650 & \$ 38,560 \\ \hline \text { 3-year ARM } & \$ 62,857 & \$ 47,698 & \$ 42,726 \\ \hline \text { 30-year fixed } & \$ 52,276 & \$ 52,276 & \$ 52,276 \\ \hline \end{array}\] -The expected value of sample information EVSI) is equal to the .

A) Expected Monetary Value EMV) without sample information divided by the EMV with sample information B) EMV without sample information minus the EMV with sample information C) sum of the EMV with sample information and the EMV without sample information D) EMV with sample information minus the EMV without sample information A) Expected Monetary Value EMV) without sample information divided by the EMV with sample information B) EMV without sample information minus the EMV with sample information C) sum of the EMV with sample information and the EMV without sample information D) EMV with sample information minus the EMV without sample information

Use the below information to answer the following questions). Below is a payoff table with three mortgage options: \[\begin{array} { | l | l | c | c | } \hline & &{ \text { Outcame } } \\ \hline \text { Probability } & { 0.6 } & { 0.3 } & { 0.1 } \\ \hline \text { Decision } & \text { Rates Rise } & \text { Rates Stable } & \text { Rates Fall } \\ \hline \text { 1-year ARM } & \$ 66,645 & \$ 43,650 & \$ 38,560 \\ \hline \text { 3-year ARM } & \$ 62,857 & \$ 47,698 & \$ 42,726 \\ \hline \text { 30-year fixed } & \$ 52,276 & \$ 52,276 & \$ 52,276 \\ \hline \end{array}\] -What is the expected opportunity loss for the 1-year ARM?

A) $ 7,979.60 B) $ 3,959.40 C) $ 6,853.50 D) $ 8,621.40 A) $ 7,979.60 B) $ 3,959.40 C) $ 6,853.50 D) $ 8,621.40

Use the information below to answer the following questions). Below are four options for an investment decision. \[\begin{array} { | l | l | l | l | } \hline \text { Decision/event } & \text { Rates Rise } & \text { Rates Stable } & \text { Rates Fall } \\ \hline \text { Bank CD } & \mathbf { 0 . 8 0 } & 0.80 & 0.80 \\ \hline \text { Bond fund } & - 0.75 & 0.86 & 1.50 \\ \hline \text { Index fund } & 0.00 & 0.90 & 1.20 \\ \hline \text { Growth fund } & - 0.30 & 0.70 & 1.40 \\ \hline \end{array}\] -Based on the average utility, which of the following is considered the worst decision?

A) Bank CD B) Bond fund C) Index fund D) Growth fund A) Bank CD B) Bond fund C) Index fund D) Growth fund

Use the information given below to answer the following questions). Below is a payoff table that lists three mortgage options: \[\begin{array} { | l | l | l | l | } \hline & { \text { Outcome } } \\ \hline \text { Decision } & \text { Rates Rise } & \text { Rates Stable } & \text { Rates Fall } \\ \hline \text { 2-year ARM } & \$ 66,645 & \$ 43,650 & \$ 38,560 \\ \hline \text { 5-year ARM } & \$ 62,857 & \$ 47,698 & \$ 42,726 \\ \hline \text { 25-year fixed } & \$ 52,276 & \$ 52,276 & \$ 52,276 \\ \hline \end{array}\] -What is the maximum opportunity loss incurred for the 5-year ARM?

A) $ 8,626 B) $ 13,716 C) $ 14,369 D) $ 10,581 A) $ 8,626 B) $ 13,716 C) $ 14,369 D) $ 10,581

Use the information given below to answer the following questions). Below is a payoff table that lists three mortgage options: \[\begin{array} { | l | l | l | l | } \hline & { \text { Outcome } } \\ \hline \text { Decision } & \text { Rates Rise } & \text { Rates Stable } & \text { Rates Fall } \\ \hline \text { 2-year ARM } & \$ 66,645 & \$ 43,650 & \$ 38,560 \\ \hline \text { 5-year ARM } & \$ 62,857 & \$ 47,698 & \$ 42,726 \\ \hline \text { 25-year fixed } & \$ 52,276 & \$ 52,276 & \$ 52,276 \\ \hline \end{array}\] -What is the maximum opportunity loss incurred for the 25-year fixed decision?

A) $ 8,626 B) $ 13,716 C) $ 14,369 D) $ 10,581 A) $ 8,626 B) $ 13,716 C) $ 14,369 D) $ 10,581

Exam 16: Decision Analysis

Use the information below to answer the following questions) Misty Inc. launches a new range of perfumes for men and women. The probability of high consumer demand for the product is 0.6 and low consumer demand is 0.4. The probability of a favorable survey response given high consumer demand is 0.9 and the probability of a favorable survey response given low consumer demand is 0.2. -Greg is indifferent between receiving $2,000, and taking a chance at $2,500 with probability 0.7 and losing $1200 with probability 0.5. What is the expected value of this gamble?

Free

(Multiple Choice)

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Question 1

Correct Answer:

Verified

A

Use the information given below to answer the following questions). Below is a payoff table that lists three mortgage options: Outcome Decision Rates Rise Rates Stable Rates Fall 2-year ARM \ 66,645 \ 43,650 \ 38,560 5-year ARM \ 62,857 \ 47,698 \ 42,726 25-year fixed \ 52,276 \ 52,276 \ 52,276 -What is the maximum opportunity loss incurred for the 2-year ARM?

Free

(Multiple Choice)

4.9/5

(39)

Question 2

Correct Answer:

Verified

C

Use the information below to answer the following questions) Misty Inc. launches a new range of perfumes for men and women. The probability of high consumer demand for the product is 0.6 and low consumer demand is 0.4. The probability of a favorable survey response given high consumer demand is 0.9 and the probability of a favorable survey response given low consumer demand is 0.2. -What is the likelihood for high demand knowing that the market report is favorable?

Free

(Multiple Choice)

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(46)

Question 3

Correct Answer:

Verified

C

Use the information below to answer the following questions). Below is a payoff table that lists four mortgage options: Outcome Decision Rates Rise Rates Stable Rates Fall 1-year ARM \ 66,645 \ 43,650 \ 38,560 3-year ARM \ 62,857 \ 47,698 \ 42,726 5-year ARM \ 55,895 \ 50,894 \ 48,134 30-year fiXed \ 52,276 \ 52,276 \ 52,276 -An) is also called a minimax regret strategy.

(Multiple Choice)

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Question 4

Answer the following questions by creating a decision tree. -Which of the following is considered the worst expected value decision?

(Multiple Choice)

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Question 5

Use the information below to answer the following questions). Below is a decision tree illustrating the R&D process for a new drug. Let us assume that if market is large, payoff is lognormally distributed with a mean of $4,900 million and a standard deviation of $1,000 million; if market is medium, payoff is lognormally distributed with a mean of $2,500 million and a standard deviation of $500 million; and if market is small, payoff is normally distributed with a mean of $1,800 million and standard deviation of $200 million. Let us also assume that the cost of clinical trials is uncertain and estimates are modeled with a triangular distribution with a minimum of -$700 million, a most likely value of - $550 million, and a maximum of -$500 million. Use 10,000 trials and a random seed of 1. -What is the value of mean obtained from the simulation results? [Hint: Choose the approximate value.]

(Multiple Choice)

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Question 6

Use the information below to answer the following questions). Below is a decision tree illustrating the R&D process for a new drug. Let us assume that if market is large, payoff is lognormally distributed with a mean of $4,900 million and a standard deviation of $1,000 million; if market is medium, payoff is lognormally distributed with a mean of $2,500 million and a standard deviation of $500 million; and if market is small, payoff is normally distributed with a mean of $1,800 million and standard deviation of $200 million. Let us also assume that the cost of clinical trials is uncertain and estimates are modeled with a triangular distribution with a minimum of -$700 million, a most likely value of - $550 million, and a maximum of -$500 million. Use 10,000 trials and a random seed of 1. -What is the mean absolute deviation obtained from the simulation results? [Hint: Choose the approximate value.]

(Multiple Choice)

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Question 7

Use the information below to answer the following questions). Below are four options for an investment decision. Decision/event Rates Rise Rates Stable Rates Fall Bank CD 0.80 0.80 Bond fund -0.75 0.86 1.50 Index fund 0.00 0.90 1.20 Growth fund -0.30 0.70 1.40 -Based on the average utility, which of the following is considered the best decision?

(Multiple Choice)

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Question 8

Use the information below to answer the following questions). Below is a decision tree for the airline revenue management. Create a one-way table and answer the following questions. -The expected value of perfect information EVPI) is equal to the .

(Multiple Choice)

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Question 9

If the payoff is $2200 and R is equal to $500, what is the utility function?

(Multiple Choice)

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Question 10

Which of the following formulas is used to determine the exponential utility function?

(Multiple Choice)

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Question 11

Use the information below to answer the following questions). Below is a decision tree for the airline revenue management. Create a one-way table and answer the following questions. -If the probability of selling the full-fare ticket is 0.80, what is the expected value of the ticket?

(Multiple Choice)

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Question 12

In a minimin strategy, the decision which minimizes the minimum payoff is chosen.

(True/False)

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Question 13

Use the below information to answer the following questions). Below is a payoff table with three mortgage options: Outcame Probability 0.6 0.3 0.1 Decision Rates Rise Rates Stable Rates Fall 1-year ARM \ 66,645 \ 43,650 \ 38,560 3-year ARM \ 62,857 \ 47,698 \ 42,726 30-year fixed \ 52,276 \ 52,276 \ 52,276 -The expected value of sample information EVSI) is equal to the .

(Multiple Choice)

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(42)

Question 14

A payoff table is a matrix whose rows correspond to events and whose columns correspond to decisions.

(True/False)

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Question 15

Use the below information to answer the following questions). Below is a payoff table with three mortgage options: Outcame Probability 0.6 0.3 0.1 Decision Rates Rise Rates Stable Rates Fall 1-year ARM \ 66,645 \ 43,650 \ 38,560 3-year ARM \ 62,857 \ 47,698 \ 42,726 30-year fixed \ 52,276 \ 52,276 \ 52,276 -What is the expected opportunity loss for the 1-year ARM?

(Multiple Choice)

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(45)

Question 16

Use the information below to answer the following questions). Below is a decision tree illustrating the R&D process for a new drug. Let us assume that if market is large, payoff is lognormally distributed with a mean of $4,900 million and a standard deviation of $1,000 million; if market is medium, payoff is lognormally distributed with a mean of $2,500 million and a standard deviation of $500 million; and if market is small, payoff is normally distributed with a mean of $1,800 million and standard deviation of $200 million. Let us also assume that the cost of clinical trials is uncertain and estimates are modeled with a triangular distribution with a minimum of -$700 million, a most likely value of - $550 million, and a maximum of -$500 million. Use 10,000 trials and a random seed of 1. -What is the coefficiIIt of variation obtained from the simulation results? [Hint: Choose the approximate value.]

(Multiple Choice)

5.0/5

(40)

Question 17

Use the information below to answer the following questions). Below are four options for an investment decision. Decision/event Rates Rise Rates Stable Rates Fall Bank CD 0.80 0.80 Bond fund -0.75 0.86 1.50 Index fund 0.00 0.90 1.20 Growth fund -0.30 0.70 1.40 -Based on the average utility, which of the following is considered the worst decision?

(Multiple Choice)

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(37)

Question 18

Use the information given below to answer the following questions). Below is a payoff table that lists three mortgage options: Outcome Decision Rates Rise Rates Stable Rates Fall 2-year ARM \ 66,645 \ 43,650 \ 38,560 5-year ARM \ 62,857 \ 47,698 \ 42,726 25-year fixed \ 52,276 \ 52,276 \ 52,276 -What is the maximum opportunity loss incurred for the 5-year ARM?

(Multiple Choice)

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(43)

Question 19

Use the information given below to answer the following questions). Below is a payoff table that lists three mortgage options: Outcome Decision Rates Rise Rates Stable Rates Fall 2-year ARM \ 66,645 \ 43,650 \ 38,560 5-year ARM \ 62,857 \ 47,698 \ 42,726 25-year fixed \ 52,276 \ 52,276 \ 52,276 -What is the maximum opportunity loss incurred for the 25-year fixed decision?

(Multiple Choice)

4.9/5

(36)

Question 20

Answer the following questions by creating a decision tree. -Which of the following is considered the worst expected value decision?

Use the information below to answer the following questions). Below is a decision tree for the airline revenue management. Create a one-way table and answer the following questions. -The expected value of perfect information EVPI) is equal to the .

If the payoff is $2200 and R is equal to $500, what is the utility function?

Which of the following formulas is used to determine the exponential utility function?

Use the information below to answer the following questions). Below is a decision tree for the airline revenue management. Create a one-way table and answer the following questions. -If the probability of selling the full-fare ticket is 0.80, what is the expected value of the ticket?

In a minimin strategy, the decision which minimizes the minimum payoff is chosen.

A payoff table is a matrix whose rows correspond to events and whose columns correspond to decisions.

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