Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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Chapter 11.3, Problem 27P
Summary Introduction
To determine: The fair price for a knockout call option.
Introduction: Simulation model is the digital prototype of the physical model that helps to
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Barbara Flynn sells papers at a newspaper stand for $0.40. The papers cost her $0.30, giving her a $0.10 profit on each one she sells. From past experience Barbara
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a) 20% of the time she sells 150 papers.
b) 20% of the time she sells 200 papers.
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d) 30% of the time she sells 300 papers.
Assuming that Barbara believes the cost of a lost sale to be $0.05 and any unsold papers cost her $0.30 and she orders 250 papers.
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A product with an annual demand of 800 units has Co = $20.00 and Ch = $6. The demand exhibits some variability such that the lead-time demand follows a normal probability distribution with µ = 26 and σ = 6.
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fixed-rate.
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DORATHY RAYMOND (SAFE MLO Test-National Component with Uniform State Content
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graduated payment.
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2013
Chapter 11 Solutions
Practical Management Science
Ch. 11.2 - If the number of competitors in Example 11.1...Ch. 11.2 - In Example 11.1, the possible profits vary from...Ch. 11.2 - Referring to Example 11.1, if the average bid for...Ch. 11.2 - See how sensitive the results in Example 11.2 are...Ch. 11.2 - In Example 11.2, the gamma distribution was used...Ch. 11.2 - Prob. 6PCh. 11.2 - In Example 11.3, suppose you want to run five...Ch. 11.2 - In Example 11.3, if a batch fails to pass...Ch. 11.3 - Rerun the new car simulation from Example 11.4,...Ch. 11.3 - Rerun the new car simulation from Example 11.4,...
Ch. 11.3 - In the cash balance model from Example 11.5, the...Ch. 11.3 - Prob. 12PCh. 11.3 - Prob. 13PCh. 11.3 - The simulation output from Example 11.6 indicates...Ch. 11.3 - Prob. 15PCh. 11.3 - Referring to the retirement example in Example...Ch. 11.3 - A European put option allows an investor to sell a...Ch. 11.3 - Prob. 18PCh. 11.3 - Prob. 19PCh. 11.3 - Based on Kelly (1956). You currently have 100....Ch. 11.3 - Amanda has 30 years to save for her retirement. At...Ch. 11.3 - In the financial world, there are many types of...Ch. 11.3 - Suppose you currently have a portfolio of three...Ch. 11.3 - If you own a stock, buying a put option on the...Ch. 11.3 - Prob. 25PCh. 11.3 - Prob. 26PCh. 11.3 - Prob. 27PCh. 11.3 - Prob. 28PCh. 11.4 - Prob. 29PCh. 11.4 - Seas Beginning sells clothing by mail order. An...Ch. 11.4 - Based on Babich (1992). Suppose that each week...Ch. 11.4 - The customer loyalty model in Example 11.9 assumes...Ch. 11.4 - Prob. 33PCh. 11.4 - Suppose that GLC earns a 2000 profit each time a...Ch. 11.4 - Prob. 35PCh. 11.5 - A martingale betting strategy works as follows....Ch. 11.5 - The game of Chuck-a-Luck is played as follows: You...Ch. 11.5 - You have 5 and your opponent has 10. You flip a...Ch. 11.5 - Assume a very good NBA team has a 70% chance of...Ch. 11.5 - Consider the following card game. The player and...Ch. 11.5 - Prob. 42PCh. 11 - You now have 5000. You will toss a fair coin four...Ch. 11 - You now have 10,000, all of which is invested in a...Ch. 11 - Suppose you have invested 25% of your portfolio in...Ch. 11 - Prob. 47PCh. 11 - Based on Marcus (1990). The Balboa mutual fund has...Ch. 11 - Prob. 50PCh. 11 - Prob. 52PCh. 11 - The annual demand for Prizdol, a prescription drug...Ch. 11 - Prob. 54PCh. 11 - The DC Cisco office is trying to predict the...Ch. 11 - A common decision is whether a company should buy...Ch. 11 - Suppose you begin year 1 with 5000. At the...Ch. 11 - You are considering a 10-year investment project....Ch. 11 - Play Things is developing a new Lady Gaga doll....Ch. 11 - An automobile manufacturer is considering whether...Ch. 11 - It costs a pharmaceutical company 75,000 to...Ch. 11 - Prob. 65PCh. 11 - Rework the previous problem for a case in which...Ch. 11 - Prob. 68PCh. 11 - The Tinkan Company produces one-pound cans for the...Ch. 11 - Prob. 70PCh. 11 - In this version of dice blackjack, you toss a...Ch. 11 - Prob. 76PCh. 11 - It is January 1 of year 0, and Merck is trying to...Ch. 11 - Suppose you are an HR (human resources) manager at...Ch. 11 - You are an avid basketball fan, and you would like...Ch. 11 - Suppose you are a financial analyst and your...Ch. 11 - Software development is an inherently risky and...Ch. 11 - Health care is continually in the news. Can (or...
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- A common decision is whether a company should buy equipment and produce a product in house or outsource production to another company. If sales volume is high enough, then by producing in house, the savings on unit costs will cover the fixed cost of the equipment. Suppose a company must make such a decision for a four-year time horizon, given the following data. Use simulation to estimate the probability that producing in house is better than outsourcing. If the company outsources production, it will have to purchase the product from the manufacturer for 25 per unit. This unit cost will remain constant for the next four years. The company will sell the product for 42 per unit. This price will remain constant for the next four years. If the company produces the product in house, it must buy a 500,000 machine that is depreciated on a straight-line basis over four years, and its cost of production will be 9 per unit. This unit cost will remain constant for the next four years. The demand in year 1 has a worst case of 10,000 units, a most likely case of 14,000 units, and a best case of 16,000 units. The average annual growth in demand for years 2-4 has a worst case of 7%, a most likely case of 15%, and a best case of 20%. Whatever this annual growth is, it will be the same in each of the years. The tax rate is 35%. Cash flows are discounted at 8% per year.arrow_forwardSix months before its annual convention, the American Medical Association must determine how many rooms to reserve. At this time, the AMA can reserve rooms at a cost of 150 per room. The AMA believes the number of doctors attending the convention will be normally distributed with a mean of 5000 and a standard deviation of 1000. If the number of people attending the convention exceeds the number of rooms reserved, extra rooms must be reserved at a cost of 250 per room. a. Use simulation with @RISK to determine the number of rooms that should be reserved to minimize the expected cost to the AMA. Try possible values from 4100 to 4900 in increments of 100. b. Redo part a for the case where the number attending has a triangular distribution with minimum value 2000, maximum value 7000, and most likely value 5000. Does this change the substantive results from part a?arrow_forwardA new edition of a very popular textbook will be published a year from now. The publisher currently has 1000 copies on hand and is deciding whether to do another printing before the new edition comes out. The publisher estimates that demand for the book during the next year is governed by the probability distribution in the file P10_31.xlsx. A production run incurs a fixed cost of 15,000 plus a variable cost of 20 per book printed. Books are sold for 190 per book. Any demand that cannot be met incurs a penalty cost of 30 per book, due to loss of goodwill. Up to 1000 of any leftover books can be sold to Barnes and Noble for 45 per book. The publisher is interested in maximizing expected profit. The following print-run sizes are under consideration: 0 (no production run) to 16,000 in increments of 2000. What decision would you recommend? Use simulation with 1000 replications. For your optimal decision, the publisher can be 90% certain that the actual profit associated with remaining sales of the current edition will be between what two values?arrow_forward
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