Question

Terry Dactel is considering the purchase of an asset having the following cash flows (in 000s): CF Prob 5 20% 12 30% 18 30%

I need help I got 5.77 :(

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Answer #1

$5.4

Mean CF = Summation of { Probability*CF}

Mean CF = 5*0.2+12*0.3+18*0.3+20*0.2 = 14

Standard deviation= Summation of { Probability*(CF-Mean CF)^2}^0.5

Standard deviation= (0.2*(5-14)^2 + 0.3*(12-14)^2 + 0.3*(18-14)^2 + 0.2*(20-14)^2)^0.5

Standard deviation= 5.4

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