Question

<ul><li>Question 1: What is the probability that a property worth at  least $150,000 in 

year 1 ends up worth $200,000 or more in year 5? (Hint: Think about numerator and  denominator to answer this question. How many properties are there overall? How  many properties start out at $150,000+ and then end up at $200,000+ in year 5?)</li><li><ul><li>Question 2: What is the probability that a property worth at least $150,000 in year 1 ends up worth more than $279,000 in year 5? (Hint: Think about numerator and denominator to answer this question. How many properties are there overall? How many properties start out at $150,000+ and then end up at $279,000+ in year 5?)</li></ul></li> <li>Open the ProblemSet 5 Tree file in Excel<ul><li>Use the answer for Question 2 above to fill in the X% </li><li>Using the information provided with the problem, fill in all of the blue cells on the Excel worksheet. </li><li>There are 39 blue cells for 2 points each, totaling 78 points</li><li>Calculate the sheet (hit F9)</li></ul></li> <li>Provide the answers to Question 1 and Question 2 above into Word</li> <li>Further provide the answers to the questions that follow:<ul><li>Describe and interpret what is going on in this tree in about 250 words. </li><li>Include a discussion on what the optimal strategy is and why is it the optimal strategy? </li><li>Include a statement of what the expected value is? What does expected value mean here? </li><li>Change the values in cells B:20 to B:26.  These contain the costs and payouts.  Change these one at a time and calculate sheet. Discuss what threshold values flip the decision tree to recommending a different strategy? </li></ul></li> </ul>

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