ZBLOG

Odyssey has hired an economist to assign a probability to each direction interest rates may take over the next 5 years. The economist has determined that there is a 0.50 probability that interest rates will decline, a 0.40 probability that rate...

To determine the best project using expected value, we need to consider the expected payoff for each project under different interest rate scenarios.

Let’s assume there are two projects: Project A and Project B. The payoffs for each project under different interest rate scenarios are as follows:

Project A:

  • If interest rates decline: $10,000
  • If interest rates remain stable: $5,000
  • If interest rates increase: -$2,000

Project B:

  • If interest rates decline: $6,000
  • If interest rates remain stable: $4,000
  • If interest rates increase: $1,000

To calculate the expected value for each project, we multiply the payoff of each scenario by its corresponding probability and sum them up:

Expected Value of Project A = (0.50 * \(10,000) + (0.40 * \)5,000) + (0.10 * -$2,000)

                        = $5,000 + $2,000 - $200
                        = $6,800

Expected Value of Project B = (0.50 * \(6,000) + (0.40 * \)4,000) + (0.10 * $1,000)

                        = $3,000 + $1,600 + $100
                        = $4,700

Therefore, based on expected value analysis, Project A has a higher expected value (\(6,800) compared to Project B (\)4,700). Thus Project A is the best choice.

Now let’s calculate the Expected Value of Perfect Information (EVPI). EVPI represents the maximum amount that someone would be willing to pay for perfect information about which direction interest rates will take.

EVPI = [Max(Expected Value with Perfect Information) - Max(Expected Value without Perfect Information)]

To calculate this:

Max(Expected Value with Perfect Information): Under perfect information assumption,

  • If interest rates decline: $10,000
  • If interest rates remain stable: $5,000
  • If interest rates increase: $2,000

Expected Value with Perfect Information = (0.50 * \(10,000) + (0.40 * \)5,000) + (0.10 * $2,000)

                                  = $5,000 + $2,000 + $200
                                  = $7,200

Max(Expected Value without Perfect Information): Based on our previous calculation, Max(Expected Value without Perfect Information) = Max(Expected Value of Project A) = $6,800

EVPI = [\(7,200 - \)6,800]

 = $400

Therefore, the Expected Value of Perfect Information (EVPI) in this case is $400.

This means that someone would be willing to pay up to $400 for perfect information about future interest rate movements in order to make a more informed decision regarding project selection.


内容由零声教学AI助手提供,问题来源于学员提问

本站部分文章来源于网络,版权归原作者所有,如有侵权请联系站长删除。
转载请注明出处:https://golang.0voice.com/?id=10410

分享:
扫描分享到社交APP
上一篇
下一篇
发表列表
游客 游客
此处应有掌声~
评论列表

还没有评论,快来说点什么吧~

联系我们

在线咨询: 点击这里给我发消息

微信号:3007537140

上班时间: 10:30-22:30

关注我们
x

注册

已经有帐号?