A real estate investor has the opportunity to purchase and currendy zoned residential. If the county board approves a recuest to rezore the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. , tha xaning change is not approved, the investor will have to sall the at a loss. Prorits (in thousands of dollars) are shown a . , if , a . ) following payoff table. State of Nature Rezoning Approved Rezoning Not Approved Decision Alternative 51 52 Purchased 630 200 Danat purchase, az D 0 (a) If the probability that the rezuning will be approved is 0.5, what decision is recommended? do not purchase What is the expected profit in dollars) $ (b) The investor can purchase an option to buy the land. Under the option, the investor maintains the rights to purchase the land anytime during the next three months while learning more about possible resistance to the rezoning proposal forn area residents. Probabilities are as follows: Let - High resistance to rezoning I-low resistance to rezoning FFF] = [ 4 P5 | H - 3,17 FISH - 0.83 PL) - 0.55 PSL) = 0.77 P's ) = 0.77 Misy) = 0.23 What is the optimal codision strategy if the investor uses the option period to learn more about the resistance from area residents before making the purchase decision? If high resistance M. dz do not purchase. If low resistance L, di purchase. If high resistance M. di purchase. If ow resistance L. dz do not purchase. fr high resistance H, 42 do not purchase. I low resistance, do not purchase If high resistance , d purchase. Ir low resistance , d purchase (c) If the option will cost the investor an additional $10,000, should the investor purchase the option? Why or why not? What is the maximum (in dollars that the investor should be willing to pay for the option? The Investor Select purchase this option, as the payoff of the investing in it is Scoct- $10,000 dollars. In general, the cost of the option can be, at mast, s in order for its payoff to break even with its cost of Investing in A real estate investor has the opportunity to purchase and currendy zoned residential. If the county board approves a recuest to rezore the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. , tha xaning change is not approved, the investor will have to sall the at a loss. Prorits (in thousands of dollars) are shown a . , if , a . ) following payoff table. State of Nature Rezoning Approved Rezoning Not Approved Decision Alternative 51 52 Purchased 630 200 Danat purchase, az D 0 (a) If the probability that the rezuning will be approved is 0.5, what decision is recommended? do not purchase What is the expected profit in dollars) $ (b) The investor can purchase an option to buy the land. Under the option, the investor maintains the rights to purchase the land anytime during the next three months while learning more about possible resistance to the rezoning proposal forn area residents. Probabilities are as follows: Let - High resistance to rezoning I-low resistance to rezoning FFF] = [ 4 P5 | H - 3,17 FISH - 0.83 PL) - 0.55 PSL) = 0.77 P's ) = 0.77 Misy) = 0.23 What is the optimal codision strategy if the investor uses the option period to learn more about the resistance from area residents before making the purchase decision? If high resistance M. dz do not purchase. If low resistance L, di purchase. If high resistance M. di purchase. If ow resistance L. dz do not purchase. fr high resistance H, 42 do not purchase. I low resistance, do not purchase If high resistance , d purchase. Ir low resistance , d purchase (c) If the option will cost the investor an additional $10,000, should the investor purchase the option? Why or why not? What is the maximum (in dollars that the investor should be willing to pay for the option? The Investor Select purchase this option, as the payoff of the investing in it is Scoct- $10,000 dollars. In general, the cost of the option can be, at mast, s in order for its payoff to break even with its cost of Investing in
