Q1 to Q6 are based on this problem.

Jack plans to produce COVID treatments for Fall 2021. He must place his order for COVID treatments well in advance because the manufacturer produces them in the summer months of 2021. Jack needs to determine whether to place 15, 10, or 5 million doses of COVID treatments. The number sold will depend largely on whether the infection rate is high, medium, or low. The following table summarizes the payoffs Jack expects to receive under each scenario.

Infection Rate

Number OrderedHigh Medium Low

15 million 10 7 3

10 million 8 8 6

5 million 4 4 4

Payoffs (in $1000s)

Jack estimates the probability of high, medium, and low infection rates as 0.25, 0.6, and 0.15, respectively.

How many doses should Jack order according to the Maximax decision rule?

Group of answer choices

1. 15 million
2. 10 million
3. 5 million

Question 2

How many doses should Jack order according to the Maximin decision rule?

Group of answer choices

1. 15 million
2. 10 million
3. 5 million

Question 3

How many doses should Jack order according to the Minimax Regret decision rule?

Group of answer choices

1. 15 million
2. 10 million
3. 5 million

Question 4

How many doses should Jack order according to the EMV decision rule?

Group of answer choices

1. 15 million
2. 10 million
3. 5 million

Question 5

How many doses should Jack order according to the EOL decision rule?

Group of answer choices

1. 15 million
2. 10 million
3. 5 million

Question 6

What is the Value of Perfect Information in $1000s?

Group of answer choices

1. 0.5
2. 1
3. 0.2
4. 7.7

Q7 to Q10 are based on this problem.

Due to the COVID crisis, UNM is negotiating a contract to borrow $300,000 to be repaid in a lump sum at the end of nine years. Interest payments will be made on the loan at the end of each year. UNM is considering the following three financing arrangements:

Option 1: UNM can borrow the money using a fixed-rate loan (FRL) that requires interest payments of 9% per year.

Option 2: UNM can borrow the money using an adjustable-rate loan (ARL) that requires an interest payment of 6% at the end of each of the first five years. At the beginning of the sixth year, the interest rate on the loan could change to 7%, 9%, or 11% with probabilities of 0.1, 0.25, and 0.65 respectively.

Option 3: UNM can borrow the money using an ARL that requires an interest payment of 4% at the end of each of the first three years. At the beginning of the fourth year, the interest rate on the loan could change to 6%, 8%, or 20% with probabilities of 0.05, 0.30, and 0.65, respectively. At the beginning of the seventh year, the interest rate could decrease by 1 percentage point with a probability of 0.1, increase by 1 percentage point with a probability of 0.2, or increase by 3 percentage points with a probability of 0.7.

Question 7

What is the payoff at the terminal node if UNM chooses Option 1?

Group of answer choices

1. -243,000
2. -174,000
3. -198,000
4. -153,000

Question 8

What is the payoff at the terminal node if UNM chooses Option 2 and the interest rate change to 9% at the beginning of the sixth year?

Group of answer choices

A. -243,000

B.-174,000

C.-198,000

D. -222,000

Question 9

What is the payoff at the terminal node if UNM chooses Option 3 and the interest rate change to 6% at the beginning of the fourth year and decrease by 1% at the beginning of the seventh year?

Group of answer choices

A. -135,000

B. -174,000

C. -198,000

D. -222,000

Question 10

Which option should UNM choose to minimize the expected interest paid?

Group of answer choices

A. Option 1

B. Option 2

C. Option 3