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Bjqp 2023

Autor:   •  October 16, 2016  •  Coursework  •  5,899 Words (24 Pages)  •  715 Views

Page 1 of 24

Table of Contents

PROBLEM 1        

PROBLEM 2        

PROBLEM 3        

PROBLEM 4        

PROBLEM 5        


PROBLEM 1

A.

 

Interest Rates

Project

Decline

Stable

Increase

Office Park

0.5

1.7

4.5

Office Building

1.5

1.9

2.4

Warehouse

1.7

1.4

1

Shopping Center

0.7

2.4

3.6

Condominiums

3.2

1.5

0.6

a.Maximax

 

Interest Rates

Project

Increase

Office Park

4.5

Office Building

2.4

Warehouse

1

Shopping Center

3.6

Condominiums

0.6

The maximax criterion is the office park. In the maximax criterion the decision maker selects the decision that will result in the maximum of maximum payoffs; an optimistic criterion. Therefore office park will be chosen because it has the highest return given that the interest rate increase, which is $4.5 million.

b. Maximin

 

Interest Rates

Project

Decline

Office Park

0.5

Office Building

1.5

Warehouse

1.7

Shopping Center

0.7

Condominiums

3.2

The maximin criterion is the condominiums. In the maximin criterion the decision maker selects the decision that will reflect the maximum of the minimum payoffs; a pessimistic criterion. Therefore, condominiums will be chosen because it has the highest return given that the interest rates decline, which is $3.2 million.

c. Equal likelihood

Decision

Values

Office Park

0.5(1/3)+1.7(1/3)+4.5(1/3)=2.23

Office Building

1.5(1/3)+1.9(1/3)+2.4(1/3)=1.93

Warehouse

1.7(1/3)+1.4(1/3)+1.0(1/3)=1.37

Shopping Center

0.7(1/3)+2.4(1/3)+3.6(1/3)=2.23

Condominiums

3.2(1/3)+1.5(1/3)+0.6(1/3)=1.77

...

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