Question

Proper 10.1 Consider the follow sosider the following probability distribution of returns estimated proposed project that involves a new ultrasound machine: for a proposed project that State of the Economy Very poor Probability of Occurrence 0.10 0.20 0.40 0.20 0.10 Poor Average Rate of Return -10.0% 0.0 10.0 20.0 30.0 Good Very good a. What is the expected rate of return on the project: b. What is the project's standard deviation of returns? What is the project's coefficient of variation (CV) of returns. (Hint: CV is defined as the standard deviation of returns divided by the expected rate of return. It measures the amount of risk per unit of return.) c. What type of risk do the standard deviation and CV measure? d. In what situation is this risk relevant? Florida lottery and was offered a

How do I solve a-d?

Answer 1

a. Expected return= 10%
b. Standard deviation= 10.95%
Coefficient of variation = standard deviation÷expected return = 10.95÷10 =1.095
c. Standard deviation and coefficient of variation both measure the total risk of the project.
d. This is relevant to measure the impact of the market and internal factors on the project.

Paojecet tet - A PCA-FA A Px A (P) b.I(-10-10) O.Ix-10 Do O2 (0-10)2 O-2X0 O.2 2 4C 10-10) O-4 lo O4K10 O 2 20 O-2X20 .2 20-1o) 30 O.IK 30 0.1 O-IC 30- 10)2 EPA = A1o A 120 % YA= 10-9 5/ epected Petuen Standaid deviatron