Question

- HW3 Part L_For Printing(1) (5) - Protected View - Saved Search Ashley Marquez AM - X ert Design Layout References Mailings Review View Help e careful-files from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View 0 Corte Share Enable Editing Use the following information for question 2 to question 3. Probability Cash Flow 0.32 S 60,000 Land 0.50 80,000 0.18 100,000 The risk-free rate is 6%. 2. What is the expected value of this land investment? (Chapter 6, slide 11-12) Example on slide is return, here is cash flows. You can apply the same formula to get the expected value. a. 77,200 b. 77,300 c. 77,600 a. 77,880 b. 77,900 Focus 2 U M 100 G Search 0 0 0 0 D e 12:02 PM 3/30/2020

hi, can you please answer 2,3, and 4. thanks for your help!

Answer 1

Prob (P)	Cash Flow	(P)*(Cash flow)	Deviation        [R-E(C)]	[R-E(C)]^2	{[R-E(RC)]^2}*(P)
0.32	60000.00	19200.00	-17200.00	295840000.00	94668800.00
0.50	80000.00	40000.00	2800.00	7840000.00	3920000.00
0.18	100000.00	18000.00	22800.00	519840000.00	93571200.00
		E(C) = 77200.00			192,160,000.00

- Expected value of land Investment, E(C) = $77,200

Hence, Option A. $ 77,200

- Standard Deviation of the land investment =

V [R - E(RC)]2 * (P)

  

= 192, 160,000

= 13862.178

Hence, Option B. $ 13,862.178

- As per CAPM,

Expected Return = R + B(Rm – R)

Rf = Risk free Return = 6%

Rm = Market return = 12%

Beta = 1.8

Expected Return = 6% + 1.8(12%-6%)

= 16.8%

Hence, Option E

If you need any clarification, you can ask in comments.

If you like my answer, then please up-vote as it will be motivating