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- Choices for the last requirement, "determine the approximate internal rate of return from the choicies (pick the closest answer. a. 29% b. 20% c. 26% d. 22%The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature: State of Nature Decision Alternative S1 S2 S3 d1 200 150 150 d2 250 150 100 The probabilities for the states of nature are P(s1) = 0.55, P(s2) = 0.25, and P(s3) = 0.2. (a) What is the optimal decision strategy if perfect information were available? S1 : S2 : S3 : (b) What is the expected value for the decision strategy developed in part (a)? If required, round your answer to one decimal place. (c) Using the expected value approach, what is the recommended decision without perfect information? What is its expected value? If required, round your answer to one decimal place. (d) What is the expected value of perfect information? If required, round your answer to one decimal place.Refer to the following payoff table (values are profit): State of Nature Alternative S1 S2 A1 75 −40 A2 0 100 Prior Probability 0.6 0.4 What is the expected payoff of the decision strategy (i.e. using the EMV/EP criterion)?
- Computing Present and Future Values Under Different Assumptions Determine the unknown variables in each of the four separate investment scenarios. Round the RATE to one percentage point (for example, enter 8.5 for 8.54444%). Round NPER, PV, and PMT to the nearest whole number. Use a negative sign only for an amount related to PMT. Investment 1 Investment 2 Investment 3 Investment 4 RATE Answer 7% 6% 1% NPER 10 Answer 4 24 PV $216,000 $9,000 Answer $21,600 PMT $(35,000) $(2,300) $(16,200) Answer TYPE End of period Beg. of period End of period Beg. of periodAn investor is consider four different opportunities, A, B, C, or D. The payoff for each opportunity will depend on the economic conditions, represented in the payoff table below. Economic Condition Investment Poor Average Good Excellent (S1) (S2) (S3) (S4) A 50 75 20 30 B 80 15 40 50 C -100 300 -50 10 D 25 25 25 25 What decision would be made under minimax regret?Four mutually exclusive alternotives are compared and their internal rate of return (IRR) values are as follows: A = 11.2%; B= 12.3%; C- 13.1%; and D= 128%. Which alternative(s) must be selected it MARR = 11%P O a All aiternatives b. Alternotives Cand D C. None of the alternatives d. Alternative C O e. Insutficient information to decide
- Question 1 Explain the Black Scholes Formula Question 2 Let S = $41, K = $40,σ = 0.3, r = 8%, T = 3 months and 8 = 0. Compute the Black Scholes call price. Question 3 Using the same inputs as in Question 2 and with a put price of $1.607, show how to compute the put price using Black Scholes then by using the Put-Call parity principles.State the decision criteria for each of the following. (2) PI > MIRR > NPV > IRR > options; 0 1 PI MIRR NPV IRR PaybackSolving for "Rate" Solution This formuala calculates the rate of return when the present value, future value, and number of periods is known Given Parameters Present Value Future Value Number of Periods Solution Excel Function -800 Solve Rate using Manula Formula 1,000 Method for Solving (Excel Formula Function "Rate") 4 1.Solve for "Rate" using the information provided above (use xcel Formula) 2.Solve for "Rate" using the information provided above (use Manual Formula)
- Possible outcomes for three investment alternatives and their probabilities of occurrence are given next. Failure Acceptable Successful Alternative 1 Alternative 2 Outcomes Probability Outcomes Probability 50 0.20 90 0.20 80 185 0.40 120 205 0.40 Alternative 1 Alternative 2 Alternative 3 Coefficient of Variation 0.40 0.40 Using the coefficient of variation, rank the three alternatives in terms of risk from lowest to highest. Note: Do not round intermediate calculations. Round your answers to 3 decimal places. Rank Alternative 3 Outcomes Probability 8.20 0.60 0.20 65 320 420a) The following information is provided: Possible future demand with probabilities Decision alternatives Low (0.25) Moderate(0.35) High(0.4) Sling bag 10 9. Clutch bag 2 12 11 Large bag (4) 4 14 Determine the various pay-offs under the following techniquesm A. Minimax Regret alpha=0.65Example 3 Inns oont alafrA Following Example 2, consider a porfolio with three assets S1, S2 and S3 which have expected rates of return 0.1,0.15 and 0.2 respectively, and variance-covariance matrix odni tanoma bszt a aitevi ot botoly 0.1 0.1 -0.1 0.1 0.2 0.1 ololles V = -0.1 0.1 0.6 vo ) isaas sod slais a at gaiteoo ottg ndi oda vodT (aldanoitesup als ot-lais wod ibuadala abnod on a) What is the optimal portfolio when up = worod of sidad = 0.2. adt yhalinie ini ba moe ja SOLUTION lo ano ot b) Use this piece of information and the earlier optimal portfolios from la aao e. Example 2 to find the quadratic equation relating of and up. ni bstni sd SOLUTION tar oad o bo s e) Hence draw a plot of the solutions, and identify the frontier port- Ldon to slar folios. it SOLUTION ods Btvni gatela dt