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

Please submit your work as an excel file. M4HW

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.


Incremental Benefit

Incremental Cost



Intensive Care



Burn Center






Physical Therapy



Lab Testing



Ear, Nose, Throat (ENT)






Occupational Therapy



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.

Calculate Price

Price (USD)