Use the Information Below to Answer the Following Question(s)

question 3

Multiple Choice

Use the information below to answer the following question(s) . Below is a decision tree illustrating the R&D process for a new drug. Let us assume that if market is large, payoff is lognormally distributed with a mean of $4,900 million and a standard deviation of $1,000 million; if market is medium, payoff is lognormally distributed with a mean of $2,500 million and a standard deviation of $500 million; and if market is small, payoff is normally distributed with a mean of $1,800 million and standard deviation of
$200 million. Let us also assume that the cost of clinical trials is uncertain and estimates are modeled with a triangular distribution with a minimum of -$700 million, a most likely value of - $550 million, and a maximum of -$500 million. Use 10,000 trials and a random seed of 1.
-What is the probability that the drug will not reach the market? [Hint: Choose the approximate value.]

• A) 0.95
• B) 0.89
• C) 0.77
• D) 0.82

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Definitions:

Sea Level

The average height of the ocean's surface between high and low tide, used as a standard in measuring land elevation and ocean depth.

Velocity

The rate of change of an object's position with respect to a frame of reference, showing both speed and direction of the object.

Segment

A part or section of something that is separated or distinct from the whole.

Decreases

The process or instance of becoming smaller or fewer in size, amount, intensity, or degree.