# University of Texas at Dallas Value of Bond if Discount Factor Increases Analysis

1. You are given a savings bond that you can exchange for \$500 in three years. Using a discount factor of 4%, how much is the bond worth today? What would the value of the bond if the discount factor increases to 8%?

2.Suppose your hospital has budgeted \$2,000,000 for making improvements to patient outcomes. Departments were asked to submit proposals for these improvements, and below is a table of the requests made. Each proposal was compared to current situation in the hospital.

 Department Incremental Benefit Incremental Cost (QALYs) (\$) Intensive Care 500 \$1,000,000 Burn Center 100 \$1,000,000 Endoscopy 200 \$500,000 Physical Therapy 150 \$300,000 Lab Testing 100 \$300,000 Ear, Nose, Throat (ENT) 300 \$900,000 Nephrology 200 \$200,000 Occupational Therapy 50 \$500,000

a) Calculate the ICER for each department’s proposal (You don’t have to compare different departments yet).

b) Which departments would you recommend funding? Why?

3. Your boss asks you to perform an economic analysis on four different treatments for Hot Dog Fingers (a fictional condition from The Office).

 Treatment Costs per year(\$) Utility Value Life Expectancy Total QALYs Total Costs A 5,000 0.7 30 B 20,000 0.8 30 C 40,000 0.85 25 D 100,000 0.9 30

a) Complete the table and calculate any ICERs. Remember to follow the steps outlined in the notes.

b) Which treatment option would you choose. Provide a short 1-2 sentence explanation.

4. Decision Trees

A small health clinic (Smallgreens) is deciding whether or not to hire a second physician. Smallgreens believes there is an 80% chance they would be able to hire a great physician. If Smallgreens successfully hires a great physician, they would earn a total of \$200,000 in profits annually. If there are unable to hire a great physician (and end up hiring a mediocre physician instead), they would only earn profits of \$60,000. Create a decision tree to help determine the expected profits from each possible situation. If Smallgreens is risk neutral, should they hire a second physician? You may do this by hand, or using Word/Excel. If you do this by hand, just insert a jpg image into a new sheet of your excel file.

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