Bill Holliday is not sure what she should do. He can either build a quadplex (i.

ID: 402904 • Letter: B

Question

Bill Holliday is not sure what she should do. He can

either build a quadplex (i.e., a building with four

apartments), build a duplex, gather additional information, or simply do nothing. If he gathers additional

information, the results could be either favorable or

unfavorable, but it would cost him $3,000 to gather

the information. Bill believes that there is a 50%u201350

chance that the information will be favorable. If the

rental market is favorable, Bill will earn $15,000

with the quadplex or $5,000 with the duplex. Bill

doesn%u2019t have the financial resources to do both. With

an unfavorable rental market, however, Bill could

lose $20,000 with the quadplex or $10,000 with the

duplex. Without gathering additional information,

Bill estimates that the probability of a favorable

rental market is 0.7. A favorable report from the

study would increase the probability of a favorable

rental market to 0.9. Furthermore, an unfavorable report from the additional information would decrease

the probability of a favorable rental market to 0.4. Of

course, Bill could forget all of these numbers and do

nothing. What is your advice to Bill?

my advice to bill....stop thinking too much and live a happy married life.. :P

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