A venture capital company feels that the rate of return ((X)) on a proposed investment is approximately

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A venture capital company feels that the rate of return \((X)\) on a proposed investment is approximately normally distributed with a mean of \(40 \%\) and a standard deviation of \(10 \%\).

a. Find the probability that the return \(X\) will exceed \(55 \%\).

b. The banking firm who will fund the venture sees the rate of return differently, claiming that venture capitalists are always too optimistic. They perceive that the distribution of returns is \(V=0.8 X-\) \(5 \%\), where \(X\) is the rate of return expected by the venture capital company. If this is correct, find the probability that the return \(V\) will exceed \(55 \%\).

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Principles Of Econometrics

ISBN: 9781118452271

5th Edition

Authors: R Carter Hill, William E Griffiths, Guay C Lim

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