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

High potential venture, High Potential Venture An organization begins w...

High Potential Venture An organization begins with the intent of growing quickly to annual sales of at least $30 to 50 million in 5 years. It also has the potential to have a f

Get , how much

how much

Assignment, Discuss the applicabilty of an operating cycle to poultry busin...

Discuss the applicabilty of an operating cycle to poultry business(consider broilers)

Investment bank, Investment Bank A lending entity is engaged in all the...

Investment Bank A lending entity is engaged in all the phases of privacy offerings the including managing, underwriting, trading, and the distributing new security issues.

Standard ratio analysis-compound growth rates, Standard ratio analysis shou...

Standard ratio analysis should be used to supplement the discussion of strength and weakness. The following ratios are most often used by practitioners: (a) Growth Rates: PEG R

Please help!!, The following information pertains to Fairways Driving Range...

The following information pertains to Fairways Driving Range, Inc.: The company is considering operating a new driving range facility in Sanford, FL. In order to do so, they will

Financial markets-securities and financial intermediaries, Describe the str...

Describe the structure of financial systems with financial markets, securities and financial intermediaries. By a structural point of view a financial system can be considered

Insurance, new features of insurance?

new features of insurance?

Explain about the functions of financial systems, Explain about the functio...

Explain about the functions of financial systems. Financial systems perform the necessary economic function of channelling funds through units who have stored surplus funds to

Business finance, shares

shares

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