INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Chapter 27, Problem 5PS
Summary Introduction
To explain: Value of dollar to improve the performance.
Introduction: To improve the manger’s performances, R-square value will be high. In this case R-square value is 0.01, which is less.
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Students have asked these similar questions
Assume that an investment is expected to generate the following returns: a 10% chance of a $1,400 return, a 50% chance of a $6,600 return, and a 40% chance of a $1,500 return. What is the expected rate of return on this investment?
Note: The solution must be displayed on an Excel sheet using Excel functions such as =PV(...) and =FV(...) etc.
Now you turn your attention to estimating the likely returns on the project. You start with the probability distribution given by your primary consultant, which is in the Excel spreadsheet. The project's expected rate of return given these initial numbers is
a. 7.40%
b. 7.18%
c. 6.14%
d. 7.99%
Management has constructed the below table of estimates reflecting the possible returns and probabilities for pessimistic, most likely and optimistic results.
Possible outcomes probability return(n$)
Pessimistic 0.4 14.00
Most likely 0.2 34.00
Optimistic 0.4 6.00
a) Determine the expected value of return for the above company
b) What is the risk involved if the company chooses to invest in the above opportunity?
Chapter 27 Solutions
INVESTMENTS (LOOSELEAF) W/CONNECT
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