Construct a payoff matrix and decision tree

Assignment Help Financial Management

Reference no: EM131951913

DESC 603 Final Exam, MSGB Program

Instructions: For multiple choice questions, please highlight the letter of your choice. You do not need to submit any Excel files but it may be used however you like.

A financial planner wants to design a portfolio of investments for a client. The client has $300,000 to invest and the planner has identified four investment options for the money. The following requirements have been placed on the planner. No more than 25% of the money in any one investment, at least one third should be invested in long-term bonds which mature in seven or more years, and no more than 25% of the total money should be invested in C or D since they are riskier investments. Use the following information to answer the following questions. (see below)

Investment	Rate of Return	Years to Maturity	Rating
A	6.45%	9	1-Excellent
B	7.10%	8	2-Very Good
C	8.20%	5	4-Fair
D	9.00%	8	3-Good

8. What would be the objective function for this LP model?

9. What would be the decision variables?

10. What would be all of the constraints for this LP model? You may list them in Excel function form or simply in words.

30. Emil Hansen is interested in leasing a sports-utility vehicle and has contacted three automobile dealers for pricing information. Each dealer offered Emil 24-month lease with no down payment due at the time of signing. Each lease includes a monthly cost, mileage allowances, and the cost for additional miles and the details are given in the below table.

Dealer	Monthly cost ($)	Mileage allowances	Cost per Additional Mile ($)
True Vehicle	300	40,000	0.30
FCO	360	46,000	0.35
Jack's Auto	410	50,000	0.15

Emil decided to choose the lease option that will minimize his total 24-month cost. Emil is not sure how many miles he will drive in the next two years. Hence, for the purpose of decision, assume that Emil wants to evaluate options of driving 20,000 miles per year, 23,000 miles per year, and 25,000 miles per year.

a. Construct a payoff matrix and decision tree.

b. Recommend a decision based on the most optimistic alternative?

c. Which leasing company could lead to the maximum regret?

d. Which alternative do you recommend and why?

31. The following questions are based on the information below.

A company needs to manage a project, which consists of the following set of activities:

Task	Duration	I.P.s
A	1	-
B	4	A
C	3	B
D	3	C
E	2	B
F	4	E
G	2	D, F

A. Construct a network diagram for this project.

B. Determine the ES/EF/LS/LF times for each task. Compute slack for each task. What are all possible paths for this project? What is the critical path(s)? Include a Gantt chart.

25. Assume that the following project has the same IPs as in the problem above.

Activity	Normal	Max Crash	Normal	Crash	Slope
A	5	2	$6,000.00	$8,000.00	$1,000.00
B	3	1	$18,000.00	$19,000.00	$1,000.00
C	4	2	$14,000.00	$19,000.00	$2,500.00
D	7	3	$6,000.00	$9,000.00	$1,000.00
E	6	5	$9,000.00	$14,000.00	$1,000.00
F	5	2	$12,000.00	$14,000.00	$1,000.00
G	4	2	$3,500.00	$7,500.00	$2,000.00

A. What would be the critical time?

B. To crash the project to 1 less than the critical time, what are all the possible ways to do that with the minimum increase in cost?

Reference no: EM131951913

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