Bjqp 2023
Autor: sakinahmusa94 • October 16, 2016 • Coursework • 5,899 Words (24 Pages) • 654 Views
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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