ReQail Ashbury

Name: ___________________________

Homework #1
Show your work/steps to receive full credit
1-17

State the input data: f = 400 , s = 5

v= 3

BEP = 400 / (5-3) = 400 / 2 =

Steps: ________________________________________________________________________
= 200

Conclusion: ____________________________________________________________________

P ( 3 or less) = P(1 = 651) + P(2=243) + P(3=41) / (651+243+41+451+333)

2-17(c) Steps: _________________________________________________________________________

(651+243+41) / 1719 = 935 / 1719 ~ 0.5439 ~54.39%

Conclusion: ____________________________________________________________________
2-29(a) Is it a probability distribution? Select one: Yes / No.

No because the random variable x variable is not between 0 to 1, it has a negative

Why? _________________________________________________________________________

value below zero.

_________________________________________________________________________

n = 10, r = 7, p = 0.5 q = 1 - 0.5

2-32(a) State the input data (see p.39): _____________________________________________________
10! / 7! (10 - 7)! x 0.5^7x0.5^(10-7)
Using the Binomial formula (Steps): ________________________________________________
= 0.1171875
Conclusion: ____________________________________________________________________
=BINOM.DIST(r=7, n=10, p=0.5, FALSE)
Write an Excel formula for question (a), (see p.41): ____________________________________
Note: It's unnecessary to submit an Excel file, just write the appropriate Excel formula here.
2-41(c) State the input data: = 60

,= 4

Z = 65 - 60 / 4 = 1.25 P(x>65) = 1 - z(1.25) = 1 - 0.89435

Steps: _________________________________________________________________________
Conclusion: ____________________________________________________________________
=0.10565
Supplemental Exercises (Chapter 2)
Let A = Event A and B = Event B
For independent events: P(AB) = P(A) P(B)

and P(A | B) = P(A)

P(AB)
_________
P(A | B) P(B)
P(B)
(a) For dependent events: P(AB) = ________________
and P(A | B) = ___________________
(b) For mutually exclusive events:

P(A) + P(B)
P(A or B) = ____________________________

P(A) + P(B) - P(A and B)

(c) For mutually inclusive (not exclusive) events: P(A or B) = ____________________________

2
3-17.
(a) What type of decision is Ken facing? Select one: Certainly, Risk, _________
Uncertainty.

maximax
(b) What decision criterion should he use? ________________
It is optimistic considering the best payoff for alternatives.
Explain. ________________________________________________________________
(c) What alternative is best? Select one: ______
Sub 100, Oiler J, Texan.
3-21.
(a) Develop an opportunity loss table using the payoff table given in Problem 3-20.
Alternative

Good Economy

Poor Economy

43,000

Bonds

0
50,000

CDs

57,000

Stock Market

Probability

3,000

0.50

0.50

(b) What decision/alternative would minimize EOL? (Please show your calculations).

(0.5*0) + (0.5*43,000) = 0 + 21,500 = 21,500

EOL (Stock) = _____________________________________________________________
(0.5*50,000) + (0.5*3000) = 25,000 + 1,500 = 26, 500
EOL (Bonds) = ____________________________________________________________
(0.5*57,000) + (0.5*0) = 28,500 + 0 = 28,500
EOL (CDs) = ______________________________________________________________
$21,500
What is the minimum EOL? ____________
market
Decision/alternative: stock
__________________
3-33.
(a) Complete the following Payoff Table:
Alternative
Go to court
Settle
Probability

Win big

Win small

Lose

250,000

-50,000

65,000

75,000

0.4

0.3

0.3

(b) If Techno wished to maximize the expected gain (EMV), should they accept the settlement offer?
(Please show your steps).

(0.4*250,000) + (0.3*0) + (0.3*-50,000) = 85,000

EMV(Go to court) = ___________________________________________________________

EMV(Settle) = ________________________________________________________________

$85,000
What is the maximum EMV? ____________
Should they accept the settlement offer? Yes / No.