Question

Problem set#4                 Please find thefollowing information.

Scenario	Probability (p)	NPV (Million USD)
Boom	0.20	300
Average	0.50	150
Bust	0.30	-100

1. The expected NPV from the investment project will be closest to –

1. $100 million
2. $200 million
3. $250 million
4. $350 million

2. The expected variance, σ² of the NPV will be closest to -

1. 19,000
2. 20,000
3. 21,000
4. 22,000

3. The expected Standard deviation, σ of the NPV will be closest to –

1. $100 million
2. $150 million
3. $200 million
4. $250 million

Answer 1

Solution :

A. The expected NPV from the investment project is = $ 105 million

Thus the expected NPV from the investment project will be closest to = $ 100 million

The solution is Option a = $ 100 million

B. The expected variance, σ2 of the NPV is = $ 21,225 Million.

Thus the expected variance, σ2 of the NPV will be closest to option c = $ 21,000 Million.

The solution is Option c = $ 21,000 million

C.The expected Standard deviation, σ of the NPV is = $ 145.6880 million

The expected Standard deviation, σ of the NPV will be closest to Option b. $ 150 million

The solution is Option b = $ 150 million

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.