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1. Conditional Probability
Suppose the probability that a student takes Economics and Psychology is 0.09. The probability that a student takes Economics is 0.70. What is the probability that a student takes Psychology given that the student is taking Economics? 2. Bayes' TheoremSuppose that 1% of the population has a certain genetic defect. An individual can take a test to determine whether they have the genetic defect. The chance of a positive test result given that the person actually has the genetic defect is 90%. The chance of a positive test result if the person does not have the genetic defect is 7%. If a person gets a positive test result, what are the odds they actually have the genetic defect? 3. Real Options: Decision Tree AnalysisIt is the beginning of January 2014 and you have been offered the following deal to go heli-skiing. If you pick the first week in January 2015 and pay for your vacation now, you can get a week of heli-skiing for $2500. However, if you cannot ski because the helicopters cannot fly due to bad weather, there is no snow, or you get sick, you do not get a refund. There is a 40% chance that you will not be able to ski. If you wait until the last minute and go only if you know that the conditions are perfect and you are healthy, the vacation will cost $4000.You estimate that the pleasure you get from heli-skiing is worth $6000 per week to you (if you had to pay any more than that, you would choose not to go).(a) If your cost of capital if 8% per year, should you book ahead or wait?(b) Draw the decision tree. 4. Financial Options(a) What is a protective put option? (b) What is the payoff of this option?(c) Illustrate the payoff on a graph with stock price on the x-axis and the payoff on the y-axis.
What are the key features of the consumption function? What causes consumption to rise or fall? Does the level of consumption deserve concern today?
Suppose that firms in the short-run are earning above-normal profits. Describe what will take place to these profits in long-run for the following markets:
You buy a bond for $1118 that pays $20 interest every 6 months. It will reach maturity in 9 years at which time it will return its face value of $1000 plus the final $20 interest payment. What is the pre-tax annual rate of return on this bond? Estima..
Management and a labor union are bargaining over how much of a $50 surplus to give to the union. The $50 is divisible up to one cent. The players have one-shot to reach an agreement. Management has the ability to announce what it wants first, and the..
Assume that the high costs of performing cause the promisor to breach a contract and pay perfect expectation damages to the promisee. Would the promisee have preferred that the promisor perform?
What is wrong with this statement: Whenever the industry fails to achieve allocative efficiency by producing too little output, the shortage arises.
examine main competitive forces in the healthcare delivery system in your state and compare the major factors that
Predict and explain what would happen to the yield spreads in response to the following macroeconomic events: (i) recession ; (ii) high inflation; (iii) stock market increase. (approx. 2 double spaced pages).
Policies that affect the supply of output in the economy as a whole are:
Suppose the wage rates of workers are based on the expected price level. If there is an unexpected increase in AD, it will cause the actual price level to increase. Then workers should raise their expected price level and negotiate a higher wage r..
Total cost and total variable cost are parallel, yet average total cost and average variable cost are not parallel. Demonstrate mathematically that ATC and AVC are not parallel.
Supposing the marginal cost curve is for a competitive industry as a whole, find out the profit-maximizing level of output and price.
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