5204S

BUS520Module4SLPAssignmentV1.xlsx

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Orig. Collapsed Solution

						Value Measure	U-Value
				0.5	High/Favorable
						7.5	7.5
	>>>	A-Real Estate
		4.75	4.75	0.5	UNFAVORABLE
						2	2
				0.75	High/Favorable
						4.5	4.5
		B-Just Hats
4.75
4.75		4	4	0.25	UNFAVORABLE
						2.5	2.5
		10 year Bond
						2.25	2.25

Expanded Solution No Probabilit

												Value Measure	U-Value
				0.5	Favorable
												7.5	7.5
	>>>	A-Real Estate
		4.75	4.75	0.5	Unfavorable
												2	2
				0.75	Favorable
												4.5	4.5
		B-Just Hats
		4	4	0.25	Unfavorable
												2.5	2.5
		10 year Bond
												2.25	2.25
										0	Favorable
												7.5	7.5
								Real Estate
								0	0	0	Unfav
												2	2
										0	Favorable
				0	Exp says "F/F"							4.5	4.5
								Just Hats
					2.25	2.25
4.75								0	0	0	Unfav.
4.75												2.5	2.5
																Posterior Probabilities of Market States
														Expert's Prediction		Real Estate		Just Hats
							>>>	Bond						Prob.	Prediction	F	U	F	U
												2.25	2.25	0.45	says "F/F"	0.750	0.250	0.900	0.100
														0.15	says "F/U"	0.750	0.250	0.300	0.700
														0.30	says "U/F"	0.125	0.875	0.900	0.100
										0	Fav			0.10	says "U/U"	0.125	0.875	0.300	0.700
												7.5	7.5
								Real Estate
								0	0	0	Unf
												2	2
										0	Fav
				0	Exp says "U/U"							4.5	4.5
								Just Hats
					2.25	2.25
								0	0	0	Unf
												2.5	2.5
							>>>	Bond
												2.25	2.25
		Consult Expert
										0	Fav
		0	0									7.5	7.5
								Real Estate
								0	0	0	Unf
												2	2
										0	Fav
				0	Exp says "F/U"							4.5	4.5
								Just Hats
					2.25	2.25
								0	0	0	Unf
												2.5	2.5
							>>>	Bond
												2.25	2.25
										0	Fav
												7.5	7.5
								Real Estate
								0	0	0	Unf
												2	2
										0	Fav
				0	Exp says "U/F"							4.5	4.5
								Just Hats
					2.25	2.25
								0	0	0	Unf
												2.5	2.5
							>>>	Bond
												2.25	2.25

Use the probabilities from the Table below and fill in this decision tree. The cells that need probability values are highlighted in green. Once you have correctly updated the d-tree with the probabilities, you will be able to see the Expected NPV of this analysis with the Expert's predictions. Keep in mind that you have not consulted the Expert yet, you are simply performing an analysis based on his track record and your prior estimates of the probabilities of Favorable or Unfavorable markets. You want to see if consulting this expert will provide additional value to your decision. Be sure to write your report and include the results of this analysis. Upload your report and this Excel file to SLP4 Dropbox.