Question
In: Math
A city manager is considering three strategies for a $1,000 investment. The probable returns are estimated...
A city manager is considering three strategies for a $1,000 investment. The probable returns are estimated as follows: • Strategy 1: A profit of $5, 000 with a probability of 0.20 and a loss of $1, 000 with a probability of 0.80.
• Strategy 2: A profit of $2, 000 with a probability of 0.40, a profit of $500 with a probability of 0.30 and a loss of $1, 000 with a probability of 0.30.
• Strategy 3: A certain profit of $400.
(a) Which strategy has the highest expected profit?
(b) If the city manager is going to pick only 1 strategy, which of the three strategies would you definitely advise against? Provide specific (numeric) details to support your answer.
Solutions
milcah answered 1 year agoRelated Solutions
A pension fund manager is considering three mutual funds for investment. The first one is a...
A pension fund manager is considering three mutual funds for
investment. The first one is a stock fund, the second is a bond
fund, and the third is a money market fund. The money market fund
yields a risk-free return of 4%. The inputs for the risky funds are
given in the following table.
Fund Expected Return Standard
Deviation
Stock Fund 14% 26%
Bond Fund 8% 14%
The correlation coefficient between the stock and the bond funds
is 0.20.
a)...
A pension fund manager is considering three mutual funds for investment. The first one is a...
A pension fund manager is considering three mutual funds for
investment. The first one is a stock fund, the second is a bond
fund and the third is a money market fund. The money market fund
yields a risk-free return of 5%. The inputs for the risky funds are
given in the following table.
Fund
Expected Return
Standard Deviation
Stock fund
13
%
33
%
Bond fund
6
%
16
%
The correlation coefficient between the stock and the bond...
A pension fund manager is considering three investment options. The first is a stock fund, the...
A pension fund manager is considering three investment options.
The first is a stock fund, the second is a corporate bond fund, and
the third is a T-bill money market fund (the risk-free asset) that
yields a sure rate of 5.5%. The probability distributions of the
risky funds are:
Expected return
(%)
Standard Deviation (%)
Stock fund
(S)
15
32
Bond fund
(B)
9
23
The correlation between the fund returns is 0.15.
a. What is the portfolio weight...
A city is considering the Base option and the Star option for investment in their public...
A city is considering the Base option and the Star option for
investment in their public works department for which data is given
below. What is the difference between the benefit/cost ratios for
the two options?
BASE OPTION
STAR OPTION
Initial cost
$2,300,000
$3,200,000
Life in years
2
3
Salvage value %
10%
8%
Salvage value $
$230,000
$256,000
Inflation rate p. y.
4%
4%
Other costs 1st year
($150,000)
($575,000)
Increase in other costs p. y.
5%
7%
Benefits...
Star City is considering an investment in the community center that is expected to return the...
Star City is considering an investment in the community center
that is expected to return the following cash flows: Use Exhibit
A.8.
Year Net Cash Flow
1 $ 35,000
2 65,000
3 95,000
4 95,000
5 115,000
This schedule includes all cash inflows from the project, which
will also require an immediate $215,000 cash outlay. The city is
tax-exempt; therefore, taxes need not be considered.
Required:
a. What is the net present value of the project if the
appropriate discount...
Star City is considering an investment in the community center that is expected to return the...
Star City is
considering an investment in the community center that is expected
to return the following cash flows. Use Exhibit A.8.
Year
Net Cash Flow
1
$
37,000
2
67,000
3
97,000
4
97,000
5
117,000
This schedule includes
all cash inflows from the project, which will also require an
immediate $217,000 cash outlay. The city is tax-exempt; therefore,
taxes need not be considered.
Required:
a.
What is the net present value of the project if the appropriate
discount...
Comparison of returns. WG Investors is looking at three different investment opportunities. Investment one is a...
Comparison of returns. WG Investors is looking at three
different investment opportunities. Investment one is a five-year
investment with a cost of $410 and a promised payout of $820 at
maturity. Investment two is a seven-year investment with a cost of
$410 and a promised payout of $1 comma 025. Investment three is
a ten-year investment with a cost of $410 and a promised payout
of $1 comma 845. WG Investors can take on only one of the three
investments....
Comparison of returns. WG Investors is looking at three different investment opportunities. Investment one is a...
Comparison of returns.
WG Investors is looking at three different investment
opportunities. Investment one is a five-year investment with a
cost of $830 and a promised payout of $1,660 at maturity.
Investment two is a seven-year investment with a cost of $830 and
a promised payout of $2,158. Investment three is a ten-year
investment with a cost of $830 and a promised payout of $3,818.
WG Investors can take on only one of the three investments.
Assuming that all three...
A city is considering building a bridge over a set of railroad tracks. Its estimated cost...
A city is considering building a bridge over a set of railroad
tracks. Its estimated cost is $200,000. The benefits to the city’s
population through reduced congestion and less wear and tear on
their automobiles is estimated at 40,000/year. There will be an
annual loss of $15,000 to decreased land values to businesses in
the area. Yearly O&M is estimated at $5,000 per year. The
bridge is expected to have a 40-year life and cost $50,000 to tear
down then...
Assume you are the manager of a financial institution. You are considering some strategies for hedging...
Assume you are the manager of a financial institution. You are
considering some strategies for hedging interest-rate risk. Would
you prefer using futures or option contracts? Why?
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- What are some ways that a company could fail at trying to become a glocalized business?
- MATLAB Create a 2 × 3 matrix variable mat. Pass this matrix variable to each of...
- Paste Corporation has established new plant for the production of new product called “Diazinon”. There are...
- C++ C++ Write a definition for a structure type for records for CDs. The record contains...
- Research Question: Does the spatial ability differ by biological sex? (Use Data A) Null Hypothesis: Spatial...
- Write a method speedingTicket() that decides whether a driver should be given a ticket from a...
- Beasley Ball Bearings paid a $4 dividend last year. The dividend is expected to grow at...
ADVERTISEMENT