# Question

You can invest in just one of four projects on a lot of land you own. For simplicity, you have modeled the payoffs (as net present value in today’s dollars) of the projects as discrete distributions. By selling the land, you can make $60,000 for sure. If you build an apartment, you estimate a payoff of $130,000 if things go well (with probability 0.60) and $70,000 otherwise. If you build a single-family house, the payoff is $100,000 (with probability 0.60) and $60,000 otherwise. Finally, you could build a gambling casino which would pay very well—$500,000—but with a probability of just 0.10 since the final government permits are not likely to be granted; all will be lost otherwise.

a. Find the expected payoff for each of these four projects. In terms of just the expected payoff, rank these projects in order from best to worst.

b. Find the standard deviation for each of these four projects. In terms of risk only, rank the projects from best to worst.

c. Considering both the expected payoff and the risk involved, can any project or projects be eliminated from consideration entirely?

d. How would you decide among the remaining projects? In particular, does any single project dominate the others completely?

a. Find the expected payoff for each of these four projects. In terms of just the expected payoff, rank these projects in order from best to worst.

b. Find the standard deviation for each of these four projects. In terms of risk only, rank the projects from best to worst.

c. Considering both the expected payoff and the risk involved, can any project or projects be eliminated from consideration entirely?

d. How would you decide among the remaining projects? In particular, does any single project dominate the others completely?

## Answer to relevant Questions

View each column as a collection of independent observations of a random variable. a. In each case, what kind of variable is represented, continuous or discrete? Why? b.* Consider the event “annual salary is above ...a. What is the standard error of a statistic? b. In what way does the standard error indicate the quality of the information provided by an estimate? c. What typically happens to the standard error as the sample size, n, ...a. What is a pilot study? b. What can go wrong if you don’t do a pilot study? A typical incoming telephone call to your catalog sales force results in a mean order of $28.63 with a standard deviation of $13.91. You may assume that orders are received independently of one another. a. Based only on this ...A random sample of 50 recent patient records at a clinic shows that the average billing per visit was $53.01 and the standard deviation was $16.48. a.* Find the standard error of the average and interpret it. b. You feel ...Post your question

0