Make sure you understand concept of certainty equivalence

Assignment Help Operation Management
Reference no: EM13970660

A young couple has $20,000 (90% of their savings) to invest in either savings bonds or a real estate deal. The (zero coupon) savings bonds return $25,000 ($5,000 interest) in three years. The (completely liquid) real estate investment, after three years, is worth $100,000 if economic conditions are good (40% chance), and worth nothing ($0) if economic conditions are bad (60%). The couple decides to invest in the savings bonds.

a. What do you know about the certainty equivalent (for the couple) of the real estate investment? HINT – Make sure you understand the concept of certainty equivalence.

b. What would you do in these circumstances?

c. Give me an example of a different set of probabilities that would change your decision in b”.

Reference no: EM13970660

Questions Cloud

Diversity management programs : Diversity management programs a. target some associates b. target some of the more prominent assoc. c. target all assoc. d. target the seasonal assoc. e. target the under respondent assoc. In a global economy _____ move freely across national borders..
Human capital is the sum off all except : Human capital is the sum off all except a. skills b. knowledge c. general attributes d. equipment e. values. The strategic approach to OB applies to a. Public sector b. The not for profit sector c. technical businesses d. education organizations e. a..
Supply of raw material are on hand at the factory based : On average, how many weeks of supply of raw material are on hand at the factory based on the following data? Total COGS of $1,581M US dollars during that year. The firm used $625M worth of raw material during that year.
Discuss the role and effects of span of control : Discuss the role and effects of span of control, and relate it to organic and mechanistic organizational structures.
Make sure you understand concept of certainty equivalence : A young couple has $20,000 (90% of their savings) to invest in either savings bonds or a real estate deal. The (zero coupon) savings bonds return $25,000 ($5,000 interest) in three years. What do you know about the certainty equivalent (for the coupl..
Determine the optimal order quantity : A mail-order house uses 15,010 boxes a year. Carrying costs are 60 cents per box a year, and ordering costs are $96. The following price schedule applies. Number of Boxes Price per Box 1,000 to 1,999 $1.25 2,000 to 4,999 1.20 5,000 to 9,999 1.15 10,0..
Describes a successful web service software : Electronic Commerce Hardware and Software Using the Web or other resources, find an article that describes a successful Web service (s) software and the hardware necessary to support this application. Describe how the company implemented Web service ..
What is the probability he is two blocks or less : A robbery has just been committed at the Corner Market in the downtown area of the city. The market owner was able to activate the alarm, and the robber fled on foot. Police officers arrived a few minutes later and asked the owner, “How long ago did ..
What is the appropriate reorder point quantity : A newspaper publisher uses roughly 820 feet of baling wire each day to secure bundles of newspapers while they are being distributed to carriers. The paper is published Monday through Saturday. Lead time is six workdays. What is the appropriate reord..

Reviews

Write a Review

 

Operation Management Questions & Answers

  Elucidate what is causing or contributing to the delays

Nancy also revealed a problem with her right wrist. Elucidate what is causing or contributing to the delays in release of information requests.

  Effective orientation

After an effective orientation, the employee should emerge with information about which three matters?

  Forecast demand using the simple moving average

A company wants to forecast demand using the simple moving average. If the company uses four prior yearly sales values (i.e., year 2007 = 100, year 2008 = 120, year 2009 = 140, and year 2010 = 210)

  What is the difference between strategic and operating

What is the difference between strategic and operating controls? What level of management would be most concerned with operating controls?

  Find an example of a current advertisement

In many cases, current marketing works by trying to get a customer to change his or her desired state in the need recognition step of the consumer decision process model. This means that the company tries to influence customers to want to purchase it..

  What questions do you have about apa format and style

What questions do you have about APA format and style? Where might you search for answers to these questions? What steps will you take to ensure that the work you submit meets APA format and style expectations? (This response does not require researc..

  Find lq w and l for the given single-channel parts operation

Currently, Manning has one parts coordinator. On average, each mechanic waits 4 minutes before the parts coordinator is available to answer questions or retrieve parts from inventory. Find Lq, W, and L for this single-channel parts operation..

  What is meant by high-performance organizations

Define what is meant by High-Performance Organizations (HPOs) and describe them in terms of their five key components. How are these different from more traditional organizations?

  Appreciation as a good or a bad thing

Suppose that the euro (€) appreciates from $1.00 per €1 to $1.20 per €1. Determine whether the underlined individuals listed below would see that appreciation as a good or a bad thing.

  Develop a seasonally adjusted forecasting model for number

Develop a seasonally adjusted forecasting model for number of patients during each part o fthe week for week 11.

  Discussion on supply chain management

The importance of Supply Chain Management can not be underestimated because it ensures that the right materials are at the right place at the right time at a minimal cost and maximum quantity.

  Find economic production quantity

ABC Co manufactures a subcomponent at the rate of 400 per day when required. Its annual demand for this item is 50000 unites. Assume 250 working days per year.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd