I need help solving Problem 3-22, Problem 3-40 and Problem 3-42 in the attached file
3-22 In Problem 3-21 you helped Allen Young determine the best investment strategy. Now, Young is thinking about paying for a stock market newsletter. A friend of Young said that these types of letters could predict very accurately whether the market would be good, fair, or poor. Then, based on these predictions, Allen could make better investment decisions.
(a) What is the most that Allen would be willing to pay for a newsletter?
(b) Young now believes that a good market will give a return of only II % instead of 14%. Will this information change the amount that Allen would be willing to pay for the newsletter? If your answer is yes, determine the most that Allen would be willing to pay, given this new information.
3-40 In Problem 3-28, you helped the medical professionals analyze their decision using expected monetary value as the decision criterion. This group has also assessed their utility for money: U( - $45,000) = 0, U( -$40,000) = 0.1, U( -$5,000) = 0.7, U($O) = 0.9, U($95,000) = 0.99, and U($100,000) = 1. Use expected utility as the decision criterion, and determine the best decision for the medical professionals. Are the medical professionals risk seekers or risk avoiders?
3-42 In the past few years, the traffic problems in Lynn McKell's hometown have gotten worse. Now, Broad Street is congested about half the time. The normal travel time to work for Lynn is only 15 minutes when Broad Street is used and there is no congestion. With congestion, however, it takes Lynn 40 minutes to get
to work. If Lynn decides to take the expressway, it will take 30 minutes regardless of the traffic conditions. Lynn's utility for travel time is: U(l5 minutes) = 0.9, U(30 minutes) = 0.7, and U(40 minutes) = 0.2.
(a) Which route will minimize Lynn's expected travel time?
(b) Which route will maximize Lynn's utility?
(c) When it comes to travel time, is Lynn a risk seeker or a risk avoider?
This provides examples of completing decision analysis problems.