Juan Carlos is considering two investment projects whose present values are described as follows. Project 1:

Question:

Juan Carlos is considering two investment projects whose present values are described as follows.
€¢ Project 1: PW(10%) = 20X + 8XK, where X and Y are statistically independent discrete random variables with the following distributions:

€¢ Project 2:
PW(I0%) Probability
$0.............................0.24
400........................... 0.20
1.600......................... 0.36
2,400......................... 0.20
(Cash flows between the two projects are also assumed to be statistically independent.)
(a) Develop the NPW distribution for project 1.
(b) Compute the mean and variance of the NPW for project 1.
(c) Compute the mean and variance of the NPW for project 2.
(d) Suppose that projects 1 and 2 are mutually exclusive. Which project would you select?

Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...