ASSIGNMENT 11

1. While making decision about alternatives, if any alternative is not clearly preferred with
respect to all other alternatives, the criterion using which the alternative is considered for
being dropped is
(a) Dominance criterion
(b) Aspiration level criterion
(c) Most probable future criterion
(d) Expected value criterion

2. The criterion that involves selecting alternative which maximizes probability of achieving
a set of achievement is
(a) Dominance criterion
(b) Aspiration level criterion
(c) Most probable future criterion
(d) Expected value criterion

3. While making decision under uncertainty, the criterion that involves an index of relative
optimism and pessimism is
(a) Laplace criterion
(b) Maximin criterion
(c) Minimax criterion
(d) Hurwicz criterion

4. The investment portfolio of business is estimated at one point of time to be Rs 5 Lakhs

and the market value went to Rs 6 Lakhs one year later. The portfolio rate of return will
be
(a) 16.67%
(b) 20%
(c) 11.11%
(d) None of these
5. The difference in the rates of return for two investments brought about by change in
prices due to change in demand following the risk aversion is called as
(a) Portfolio return
(b) Risk premium
(c) Portfolio investment
(d) None of these
6. The cost of arranging a training program is described by the following probability
distribution. The expected cost of arranging the program will be
Cost (In Lakhs Probability of
of Rupees) Occurrence
5 0.20
6 0.30
8 0.25
10 0.20
12 0.05
 (a) Rs. 6.4 Lakhs
(b) Rs. 7.4 Lakhs
(c) Rs. 6.8 Lakhs
(d) Rs. 10.2 Lakhs
Solution

Expected Cost = 5 x 0.2 + 6 x 0.3 + 8 x 0.25 + 10 x 0.2 + 12 x 0.5

= 7.4 Lakhs

7. The following matrix gives the payoff values for three alternatives and three possible
states of nature. The alternative which will be chosen using Hurwicz rule with α = 0.75
will be
State of Nature
Alternative S1 S2 S3
A1 50 80 80
A2 60 70 20
A3 90 30 60
(a) A1
(b) A3
(c) A2
(d) Either A1 or A2
Solution

Expected Value

For alternative A1  0.75(80) + 0.25(50) = 72.5

For alternative A2  0.75(70) + 0.25(20) = 57.5

or alternative A3  0.75(90) + 0.25(30) = 75

8. The table below gives the net profit calculated for five investment opportunities under
three possible futures. The alternatives that should be selected under the most probable
future criterion and the expected value criterion respectively are
Alternative (0.3) (0.2) (0.5)
F1 (Rs) F2 (Rs) F3 (Rs)
A1 30,00,000 20,00,000 38,00,000
A2 -20,00,000 16,00,000 59,00,000
A3 0 18,00,000 50,00,000
A4 11,00,000 28,00,000 20,00,000
A5 40,00,000 9,00,000 18,00,000

(a) A2 and A1
(b) A3 and A1
 (c) A3 and A4
(d) A2 and A4
Solution
Most probable is A2
Expected value of profit for:
A1 =32x105 [(30x0.3+20x0.2+ 38x0.5)x105=32x105]
A2 = 26.7 x 105
A3= 28.6 x 105
A4 = 18.9 x 105
A5 = 22.8 x 105
A1 has maximum expected value. Hence answer is A2 and A1

For Q 9 TO 10:

Cost per kilometre, X, is a random variable and is described in the table below:

Cost(X) in Rupees Probability that cost is X

8000000 0.1
10000000 0.3
12000000 0.3
14000000 0.2
16000000 0.1
9. The expected value of the cost per kilometer will be
(a) 11600000
(b) 11800000
(c) 11200000
(d) 11300000
Solution

expected cost = x probability

= (8+30+36+28+16) x 105 = 118x105

10. If the contractor wishes to be 90% sure that the cost will not exceed the income, the bid
selected should be for Rupees
(a) 16000000
(b) 14000000
(c) 12000000
(d) 10000000
Solution

90 % probability comes at cost of Rs 14000000