Question

You are considering investing in a project in Australia. There are several risks that you think have the potential to significantly affect project performance. The risks you are concerned about are as follows: * AUD currency value. You think the probability of depreciation is 0.24, the probability of stable value is 0.54, and the rest is the probability of appreciation. * General economic conditions. Probability of weak economy is 0.18, average economy 0.11, and the rest is good economy. * Local tax rates. Probability of increased tax rate is 0.27, and the rest is stable tax rate. There are 18 possible states of the world you will be working with. Assume all these events are independent. What is the probability of stable currency value, good economy, and increased tax rate? Enter answer in percents.

Answer 1

Information provided can be summarised as follows-

	Depreciation	stable	appreciation
AUD currency value	24%	54%	22%
	Weak	Average	Good
General Economic Condition	18%	11%	71%
	Increased tax rate	stable
Local Tax rates	27%	73%	-

As mentioned, All the events are independent, so ,the probability of all the 18 states will be as follows-

=0.24*0.18*0.27

=0.24*0.11*0.27

=0.24*0.71*0.27

=0.24*0.18*0.73

=0.24*0.11*0.73

=0.24*0.71*0.73

=0.54*0.18*0.27

=0.54*0.11*0.27

=0.54*0.71*0.27

=0.54*0.18*0.73

=0.54*D39*0.73

=0.54*0.71*0.73

=0.22*0.18*0.27

=0.22*0.11*0.27

=0.22*0.71*0.27

=0.22*0.18*0.73

=0.22*0.11*0.73

=0.22*0.71*0.73

The probability of stable currency value, good economy, and increased tax rate will be = 54% x 71% x 27% = 10.35%