Question
In: Economics
A firm is considering two projects, A and B, with the following probability distributions for profit....
A firm is considering two projects, A and B, with the following probability distributions for profit.
Profit ($1,000s). Project A Probability (%) Project B Probability (%)
$20 10 10
40 15 15
60 50 25
80 15 40
100 10 10
a. Compute the expected value of project A (in $1,000s).
b. Compute the variance of project A (in $1000s).
c. Compute the expected value of project B (in $1000s).
d. Which project would be selected if an analysis of variance rule were applied?
e. Which project would a risk-neutral manager select?
f. Report the coefficients of variation (?
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
A firm is considering two mutually exclusive projects, A and B. The projects are different in...
A firm is considering two mutually exclusive projects, A and B.
The projects are different in that they have different returns
depending on general economic conditions. The firm forecasts that
return on the market, and the returns on each project, along with
their associated probabilities will be given by the following
table. You can assume a 5% risk free rate and a 6% market risk
premium. Assume the CAPM holds. Compare the expected returns to the
cost of capital for...
Stocks A and B have the following probability distributions of expected future returns: Probability A B...
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.2
(7%)
(37%)
0.2
4
0
0.2
13
19
0.3
18
27
0.1
38
48
Calculate the expected rate of return, , for Stock B ( =
11.20%.) Do not round intermediate calculations. Round your answer
to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 26.62%.) Do not round
intermediate calculations. Round your answer to...
Stocks A and B have the following probability distributions of expected future returns: Probability A B...
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.3
(15%)
(30%)
0.2
3
0
0.2
11
20
0.1
24
26
0.2
33
40
Calculate the expected rate of return, , for Stock B ( = 7.30%.)
Do not round intermediate calculations. Round your answer to two
decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 26.58%.) Do not round
intermediate calculations. Round your answer to...
Stocks A and B have the following probability distributions of expected future returns: Probability A B...
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.1
(9
%)
(30
%)
0.2
6
0
0.5
12
22
0.1
21
26
0.1
32
47
Calculate the expected rate of return, , for Stock B
( = 11.60%.) Do not round intermediate calculations. Round your
answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 19.66%.) Do not round
intermediate calculations. Round your answer...
Stocks A and B have the following probability distributions of expected future returns: Probability A B...
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.1
(7
%)
(35
%)
0.2
3
0
0.5
13
18
0.1
20
25
0.1
29
44
Calculate the expected rate of return, , for Stock B ( =
11.30%.) Do not round intermediate calculations. Round your answer
to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 19.67%.) Do not round
intermediate calculations. Round your...
Stocks A and B have the following probability distributions of expected future returns: Probability A B...
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.1
(9
%)
(33
%)
0.1
5
0
0.6
12
23
0.1
20
27
0.1
38
45
Calculate the expected rate of return, , for Stock B ( =
12.60%.) Do not round intermediate calculations. Round your answer
to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 19.71%.) Do not round
intermediate calculations. Round your...
Stocks A and B have the following probability distributions of expected future returns: Probability A B...
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.4
(10%)
(23%)
0.2
3
0
0.1
14
22
0.1
23
25
0.2
32
46
Calculate the expected rate of return, , for Stock B
( = 6.70%.) Do not round intermediate calculations. Round your
answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 26.90%.) Do not round
intermediate calculations. Round your answer to two...
Stocks A and B have the following probability distributions of expected future returns: Probability A B...
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.1
(11
%)
(39
%)
0.2
2
0
0.5
16
21
0.1
20
30
0.1
39
47
Calculate the expected rate of return, , for Stock B ( =
13.20%.) Do not round intermediate calculations. Round your answer
to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 21.89%.) Do not round
intermediate calculations. Round your...
Stocks A and B have the following probability distributions of expected future returns: Probability A B...
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.1
(8
%)
(26
%)
0.1
2
0
0.6
13
24
0.1
18
29
0.1
32
40
Calculate the expected rate of return, , for Stock B ( =
12.20%.) Do not round intermediate calculations. Round your answer
to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 17.54%.) Do not round
intermediate calculations. Round your...
Stocks A and B have the following probability distributions of expected future returns: Probability A B...
Stocks A and B have the following probability distributions of
expected future returns:
Probability
A
B
0.1
(6
%)
(26
%)
0.2
4
0
0.4
14
23
0.2
24
27
0.1
37
37
Calculate the expected rate of return, , for Stock B
( = 14.30%.) Do not round intermediate calculations. Round your
answer to two decimal places.
%
Calculate the standard deviation of expected returns,
σA, for Stock A (σB = 17.76%.) Do not round
intermediate calculations. Round your answer...
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