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College Algebra
College Algebra
7th Edition
ISBN:9781305115545
Author:James Stewart, Lothar Redlin, Saleem Watson
Publisher:James Stewart, Lothar Redlin, Saleem Watson
Chapter9: Counting And Probability
Section9.4: Expected Value
Problem 1E: If a game gives payoffs of $10 and $100 with probabilities 0.9 and 0.1, respectively, then the...
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Suppose that we are considering the investment project which requires an initial investment outflow of $345. Given a resulting cash flows of $600, $300 and -$150 in year 1. In year 2, each branch will produce three possible outcomes as shown in the table below. The risk-free rate of return is 7.5%. Calculate the Expected Net Present Value (NPV), Variance and Standard Deviation of this investment project by using probability tree approach. YEAR 1 YEAR 2 Initial Net Cash Conditional Net Cash Flow Branch Probability P(1) Flow Probability P (2/1) 0.20 $700 1 0.30 $600 0.40 $200 $500 0.40 0.30 -$100 4 0.50 $300 0.30 $300 0.40 $500 0.30 -$400 0.20 -$150 0.20 -$100 0.50 $200 6. 23 647989
Transcribed Image Text:Suppose that we are considering the investment project which requires an initial investment outflow of $345. Given a resulting cash flows of $600, $300 and -$150 in year 1. In year 2, each branch will produce three possible outcomes as shown in the table below. The risk-free rate of return is 7.5%. Calculate the Expected Net Present Value (NPV), Variance and Standard Deviation of this investment project by using probability tree approach. YEAR 1 YEAR 2 Initial Net Cash Conditional Net Cash Flow Branch Probability P(1) Flow Probability P (2/1) 0.20 $700 1 0.30 $600 0.40 $200 $500 0.40 0.30 -$100 4 0.50 $300 0.30 $300 0.40 $500 0.30 -$400 0.20 -$150 0.20 -$100 0.50 $200 6. 23 647989
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