Scribd Logo
Upload

Welcome to Scribd!

  • 40 views

    Exam 1 Quantitative Methods For Management (SM 60.65)

    Uploaded by

    zeeshansheikh7
    This exam is to be completed individually without assistance. It contains 3 questions regarding quantitative analysis and decision making. Students must show their work, check calculations carefully, and manage their time well. Dishonest behavior is not allowed and will result in penalties.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Exam 1 Quantitative Methods For Management (SM 60.65)

    Uploaded by

    zeeshansheikh7
    40 views4 pages
    This exam is to be completed individually without assistance. It contains 3 questions regarding quantitative analysis and decision making. Students must show their work, check calculations carefully, and manage their time well. Dishonest behavior is not allowed and will result in penalties.

    Original Description:

    solution

    Original Title

    2013 Exam 1

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This exam is to be completed individually without assistance. It contains 3 questions regarding quantitative analysis and decision making. Students must show their work, check calculations carefully, and manage their time well. Dishonest behavior is not allowed and will result in penalties.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    40 views4 pages

    Exam 1 Quantitative Methods For Management (SM 60.65)

    Uploaded by

    zeeshansheikh7
    This exam is to be completed individually without assistance. It contains 3 questions regarding quantitative analysis and decision making. Students must show their work, check calculations carefully, and manage their time well. Dishonest behavior is not allowed and will result in penalties.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 4

    Name:

    ID:

    Exam 1
    Quantitative Methods for Management (SM 60.65)

    PLEASE DO NOT FLIP PAST THIS PAGE UNTIL YOU ARE


    INSTRUCTED TO DO SO

    This exam is to be completed individually. Dishonest behavior during


    the exam will result in a failing grade, and the maximum penalty
    stipulated by the School of Management.

    Instructions
    1. Manage your time carefully.
    2. Show the steps of your calculations in sufficient detail.
    3. This exam is closed-book, closed-notes. No calculators are allowed.
    4. Write neatly. Check your calculations to avoid silly mistakes.
    5. You may not leave the exam room before submitting your complete exam.

    Question

    Score

    1
    2
    3
    Total

    Question 1 (50 points)


    Bruno Mars is trying to decide when to sell his apartment. If he were to sell it today, he
    could get $100,000. Suppose Bruno can also choose to sell at the end of next year (year
    1) or at the end of the following year (year 2).
    For each year Bruno keeps the apartment, he receives $5,000 in rents. A knowledgeable
    real estate agent predicts that over the course of each year, the market price of the
    apartment can either go up or down by $10,000. During year 1, there is a 20% chance the
    market price of the apartment will go up.
    Importantly, what happens in year 1 and year 2 are not independent. If the price went up
    in year 1, then there is a much great probability, 60%, that the price will go up again in
    year 2. However, if the price went down in year 1, the probability that the price will go
    up in year 2 is only 10%.
    a) (45 points) Develop a decision tree for this problem with all the labels, probabilities
    and payoffs.

    b) (5 points) Redraw your decision tree in the space below and solve for the optimal
    decision. Indicate the EMV of your solution.

    Question 2 (20 points)


    Recall the decision tree for Marys problem involving the outdoor show from homework
    #1 below.

    a) (10 points) What is the probability that it will be rainy on the day of the show?

    b) (10 points) Assume the probability of a rainy forecast is not 0.1 but 0.2. Furthermore,
    the probability that it rains following a rainy forecast is unchanged (i.e. 0.9). What
    must the probability of rain following a sunny forecast be so that the overall
    probability of rain is unchanged (i.e. the same as calculated in part a)?

    Question 3 (30 points)


    A potato farmer is trying to estimate her risk associated with the sales of this years crop.
    She believes the probability of her yield (in tons) follows the distribution below.
    Yield (tons)

    Probability

    210

    10%

    220

    10%

    230

    40%

    240

    30%

    250

    10%

    a) (10 points) Let cell A1 contain the formula =rand(). Write an Excel formula for cell
    B1 that generates a random variable representing the yield size in tons.

    b) (10 points) Now suppose the market price for potatoes follows the inverse demand
    equation: Price = 15.5 0.05Yield + N, where N is a random variable that is
    normally distributed with mean 0 and standard deviation 0.5. Write an Excel formula
    for cell C1 that generates a random variable representing the market price.

    c) (10 points) Assume the cell D1 gives the value of B1 multiplied by C1. In other
    words, D1 is the random variable representing revenue. The calculation is repeated
    1,000 times, with results in columns A through D and rows 1 to 1,000. Write an Excel
    formula that estimates the probability that the farmers revenue falls between $2,000
    and $2,500.

    You might also like