Orlando Regidor has applied for a mortgage to purchase a house and will go to settlement in two months. His loan can be “locked-in” at the current market interest rate of 8.5% at a cost of PhP10,000. He also has the option of waiting one month and locking-in at the current rate at that time at a cost of PhP5,000. Finally, he can choose to accept the current market rate at settlement in two months at no cost. Assume interest rates will either increase by 0.5% (30% probability), remain unchanged (50% probability), or decrease by 0.5% (20% probability) at the end one month. Rates can also increase, remain unchanged, or decrease by another 0.5% at the end on the second month. If rates increase after one month, the probability that they will increase, remain unchanged, and decrease at the end of the second month is 50%, 25%, and 25% respectively. If rates remain unchanged after one month, the probability that they will increase, remain unchanged, and decrease at the end of the second month is 25%, 50%, and 25% respectively. If rates decrease after one month, the probability that they will increase, remain unchanged, and decrease at the end of the second month is 25%, 25%, and 50% respectively. Assuming Orlando Regidor will stay in the house for 5 years, each 0.5% increase in the interest rate of his mortgage will cost him PhP24,000. Each 0.5% decrease in the rate will likewise save him PhP25,000. a) Construct the decision tree diagram. b) What strategy would you recommend to Orlando Regidor?
Critical Path Method
The critical path is the longest succession of tasks that has to be successfully completed to conclude a project entirely. The tasks involved in the sequence are called critical activities, as any task getting delayed will result in the whole project getting delayed. To determine the time duration of a project, the critical path has to be identified. The critical path method or CPM is used by project managers to evaluate the least amount of time required to finish each task with the least amount of delay.
Cost Analysis
The entire idea of cost of production or definition of production cost is applied corresponding or we can say that it is related to investment or money cost. Money cost or investment refers to any money expenditure which the firm or supplier or producer undertakes in purchasing or hiring factor of production or factor services.
Inventory Management
Inventory management is the process or system of handling all the goods that an organization owns. In simpler terms, inventory management deals with how a company orders, stores, and uses its goods.
Project Management
Project Management is all about management and optimum utilization of the resources in the best possible manner to develop the software as per the requirement of the client. Here the Project refers to the development of software to meet the end objective of the client by providing the required product or service within a specified Period of time and ensuring high quality. This can be done by managing all the available resources. In short, it can be defined as an application of knowledge, skills, tools, and techniques to meet the objective of the Project. It is the duty of a Project Manager to achieve the objective of the Project as per the specifications given by the client.
Orlando Regidor has applied for a mortgage to purchase a house and will go to settlement in two months. His loan can be “locked-in” at the current market interest rate of 8.5% at a cost of PhP10,000. He also has the option of waiting one month and locking-in at the current rate at that time at a cost of PhP5,000. Finally, he can choose to accept the current market rate at settlement in two months at no cost. Assume interest rates will either increase by 0.5% (30% probability), remain unchanged (50% probability), or decrease by 0.5% (20% probability) at the end one month. Rates can also increase, remain unchanged, or decrease by another 0.5% at the end on the second month.
If rates increase after one month, the probability that they will increase, remain unchanged, and decrease at the end of the second month is 50%, 25%, and 25% respectively. If rates remain unchanged after one month, the probability that they will increase, remain unchanged, and decrease at the end of the second month is 25%, 50%, and 25% respectively. If rates decrease after one month, the probability that they will increase, remain unchanged, and decrease at the end of the second month is 25%, 25%, and 50% respectively.
Assuming Orlando Regidor will stay in the house for 5 years, each 0.5% increase in the interest rate of his mortgage will cost him PhP24,000. Each 0.5% decrease in the rate will likewise save him PhP25,000.
a) Construct the decision tree diagram.
b) What strategy would you recommend to Orlando Regidor?
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