1.In evaluating a project, a financial manager thinks that the NPV of the project's cash flows can take three values: -$100,000, $100,000 and $200,000 with equal probability. The probability of the project's NPV being positive is_________.

a.20%b.40%c.60%d.80%e. None of the above

2.The sales of a firm can take any value in the range from $1 million to $5 million with equal chance at any value in the range. The sales manger is targeting on $4 million or above for this year's sale. Then the probability of the sales being greater than $4 million in this year is ____________.

a. 1/4b. 1/5c. 2/4d. 2/5e. None of the above

3.Suppose that you wish to invest in two stocks: Stock 1 and Stock 2. If stock 1's return r₁follows a normal distribution N(10%, (20%)²) and stock 2's return r₂follows a normal distribution N(8%, (15%)²).If the correlation coefficient between the two returns is .6.You form a portfolio (with return r_p) by putting 60% of your money into stock 1 while the rest on stock 2. If the risk-free rate r_fis 4%, then your portfolio's Sharpe Ratio ([E(r_p) - r_f]/_p, where_pis the standard deviation of your portfolio) is ________.

a. .08b. .19c. .23d. .32e. None of the above

4.You are asked to evaluate the effort of a CEO in a firm. The CEO can take two effort levels, High and Low, but you cannot directly observe them. Based on the past observation, you are informed that he will take high effort level with probability .7. If he takes high effort, then the firm's earnings per share (EPS) would take three values $2, $1 and -$1 with probabilities .7, .2 and .1, respectively. However, if he takes low effort, then his firm's EPS would take three values $1, $0 and -$1 with probabilities .2, .3 and .5, respectively. Please answer the following questions: (1) What is the unconditional probability for each of the four EPSs? (2)What is the (unconditional) expected value of the firm's EPS? (3) If the CEO takes low effort, then what is the (conditional) expected EPS for the firm? (4) What is the (unconditional) probability of EPS being less than $1? (5) If you observe that EPS is $1, then what is the probability of the CEO having taken high effort?