Question
1.a. Consider the following probability distribution of returns estimated for a proposed project that involves a new ultrasound machine: State of the Probability Rate of
1.a. Consider the following probability distribution of returns estimated for a proposed project that involves a new ultrasound machine:
State of the | Probability | Rate of |
economy | of occurrence | return |
Poor | 0.3 | -20% |
Average | 0.45 | 10% |
Good | 0.25 | 30% |
What is the expected rate of return on the project?
Write your answer as a percentage.
1.b. What is the project's standard deviation of returns in the previous question?
Write your answer as a percentage out to two decimal places.
1.c. Given the previous two questions, what is the project's coefficient of variation (CV) of returns?
Write your answer out to two decimal places.
1.d. Consider the following probability distribution of returns estimated for a proposed project that involves a new clinic:
State of the | Probability | Rate of |
economy | of occurrence | return |
Poor | 0.25 | -25% |
Average | 0.45 | 15% |
Good | 0.3 | 45% |
What is the expected rate of return on the project?
Write your answer as a percentage.
1.e. What is the project's standard deviation of returns in the previous question?
Write your answer as a percentage out to two decimal places.
1.f. Given the previous two questions, what is the project's coefficient of variation (CV) of returns?
Write your answer out to two decimal places.
1.g. Which of the following is not correct?
Group of answer choices
The standard deviation and coefficient of variation measure variability about the mean.
The standard deviation and coefficient of variation measure stand alone risk.
The standard deviation and coefficient of variation are relevant when the investment will be held within a portfolio of investments.
The standard deviation and coefficient of variation reflect both market risk and company specific risk.
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