1. Problem 20.4 An author is trying to choose between two publishing companies that are competing for the marketing rights to her new novel. Company A has offered the author $10,000 plus $2 per book sold. Company B has offered the author $2,000 plus $4 per book sold. The author believes that five levels of demand for the book are possible: 1,000, 2,000, 5,000, 10,000, and 50,000 books sold. a. Compute the payoffs for each level of demand for company A and company B. b. Construct a payoff table, indicating the events and alternative courses of action. C. Construct a decision tree. d. Construct an opportunity loss table 2. Problem 20.11 The following are the returns ($) for two stocks: A Expected monetary value Standard deviation 20 Which stock would you choose and why? 60 60 10 3. Problem 20.20 In Problem 20.12, a vendor at a baseball stadium is deciding whether to sell ice cream or soft drinks at today's game. Prior to making her decision, she decides to listen to the local weather forecast. In the past, when it has been cool, the weather reporter has forecast cool weather 80% of the time. When it has been warm, the weather reporter has forecast warm weather 70% of the time. The local weather forecast is for cool weather a. Revise the prior probabilities now that you know that the weather forecast is for cool weather. b. Use these revised probabilities to repeat Problem 20.12. C. Compare the results in (b) to those in Problem 20.12. I 4. Problem 20.28 Why can't an opportunity loss be negative? 5. Problem 20.32 What are the advantages and disadvantages of using expected monetary value (EMV) as compared to the return-to-risk ratio (RTRR)