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(3 marks) Suppose that a project has the following cash flow stream with the given probabilities: $600 0.4 $500 0.6 0.5 $200 $300 0.5 0.7
(3 marks) Suppose that a project has the following cash flow stream with the given probabilities: $600 0.4 $500 0.6 0.5 $200 $300 0.5 0.7 $100 0.3 $0 Assume that the 1-year risk-free rates are 5% from t = 0 to t = 1, 6% from t = 1 to t = 2 in the upper states, and 4% from t = 1 to t = 2 in the lower states. Furthermore, assume that the up-state risk adjust- ment factors are 0.67 att-1, 0.817 at t-2 in the upper states, and 0.52 at t-2 in the lower states. Find the present value of the cash flow stream
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