User Account

All Pages

Decision Analysis, Finance Basics

Assignment Help:
2 Questions

QUESTION #1
LAPTOP SELECTION

Jonna is in market to buy a new laptop. Six different machines are under consideration. All laptops are essentially the same, but they vary in price and reliability. The least expensive model is also the least reliable, the most expensive is the most reliable, and the others are in between. The laptops are described as follows:

A Price $1260 Expected number of days in the shop per year = 5.5
B Price $1750 Expected number of days in the shop per year = 2
C Price $860 Expected number of days in the shop per year = 8
D Price $1575 Expected number of days in the shop per year = 3.5
E Price $1525 Expected number of days in the shop per year = 2.5
F Price $1245 Expected number of days in the shop per year = 4



The laptop will be an important part of Jonna’s livelihood for the next two years. (After two years, the laptop will have a negligible salvage value.) In fact, Jonna can foresee that there will be specific losses if the laptop is in the shop for repairs. The magnitude of the losses are uncertain but are estimated to be approximately $175 per day that the laptop is down.

a. Can you give any advice to Jonna without doing any calculations? (Maximum four line answer, No calculation, No graph required)
b. Use the information given to determine weights KP and KR, where R stands for ‘reliability’ and P stands for ‘price’.
c. Calculate overall utilities for the laptops, What do you conclude?
d. What consideration other than losses might be important in determining the trade off rate between cost and reliability? List at least three of them.
(Please show all the steps)

Question 2:

QUESTION 2
HELP – THE BETTOR (Calculation required 4 decimal places, Objective: Maximization of wealth)

A utility function is called Linear-plus-exponential when it contains both linear and exponential terms.

Brigg, a bettor, has a choice between the following two alternatives:
(For simplicity it is assumed that cost of each alternative is negligible, equivalent to zero)

Alternative # A 5% chances to WIN $11,900
95% chances to WIN $1200

Alternative # B 90% chances to WIN $2100
10% chances to LOSE $2150


If Brigg has $3,000, having utility function U(x) = ln(x) – 0.0005x, where x is total wealth which Alternative he should choose A or B?

If Brigg has $6,000, having utility function U(x) = ln(x) – 0.0005x, where x is total wealth which Alternative he should choose A or B?

If Brigg has $12,000, having utility function U(x) = 0.0015x -12.48e-x/13420, where x is total wealth which Alternative he should choose A or B?

If bettor is not risk neutral and having utility function U(x) = 1.75 - e-x/13420 what will be your recommendation, Alternative A or B. Calculate Risk premium for Alternative A and B independently? Which Alternative will give high certainty value to Brigg? Assume Brigg is risk neutral, what will be your recommendation among the alternatives?

NOTE :
(MUST calculate at least 4 decimal places otherwise you may not choose correct alternative and marks will be deducted.) (It is advisable to use Excel)

Related Discussions:- Decision Analysis

DESICIONES DE INVERSION A LARGO PLAZO, LOMBARD COMPANY

LOMBARD COMPANY

Compute appropriate net present value, Imagine Joy is the project coordinat...

Imagine Joy is the project coordinator in a company where four projects are running concurrently. He's employed you as the senior business analyst to perform some financial calcula

Credit Limit, Suggestion regarding Credit limit. Should it be approved or n...

Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of credit limit that electronics give to Booth Plastics.

Fixed assets or sales ratio, Last year Nymphe Technologies had $450 million...

Last year Nymphe Technologies had $450 million of sales and $270 million of fixed assets, so its FA/Sales ratio was 60%.  However, its fixed assets were used at only 75% of capacit

Aafafa, ksklklsdfmklsnakakngjkalkgblakbgklabgklagkbaskgbljas a kalks las l...

ksklklsdfmklsnakakngjkalkgblakbgklabgklagkbaskgbljas a kalks las lgaskgbak a lv aslglaksglas la sla

Fixed asset and total asset turnover ratio, Fixed Asset and Total Asset Tur...

Fixed Asset and Total Asset Turnover Ratio Fixed asset turnover = Annual Sales / Fixed Assets This ratio indicate the efficiency along with which, the fixed assets we

Draw a budget constraint , The price of bread is $0.50 per pound, and the p...

The price of bread is $0.50 per pound, and the price of butter is $0.25 per ounce. Channing spends all of her income, buying 12 pounds of bread, 7 ounces of butter, and nothing els

Advantages and disadvantage of profitability index, Advantages and Disadvan...

Advantages and Disadvantage of Profitability Index Advantages of profitability index a) Simple to understand and utilize. b) The part of NPV in the venture will show t

Define the terms proprietorship, Briefly define the terms proprietorship, p...

Briefly define the terms proprietorship, partnership, and corporation. Ans: The term proprietorship is used as a business owned by one person. Two or more than two people wh

Calculate yield to maturity - annual & semi annual payment, 1) Calculate th...

1) Calculate the yield to maturity of a 7-year $1,000 par value bond with an annual coupon rate of 7.5% and a current price of $1,125. Provide the spreadsheet solutions for both an

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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