Answered step by step
Verified Expert Solution
Question
1 Approved Answer
A. Suppose an American MNC is contemplating a big construction project in the heart of the Amazon rainforest in Brazil. The MNC's expected returns from
A. Suppose an American MNC is contemplating a big construction project in the heart of the Amazon rainforest in Brazil. The MNC's expected returns from the existing domestic operations are 10% with a standard deviation of 20%. The Amazonian project promises a return of 25% with a standard deviation of 30%. They have $80 billion dollars invested in domestic operations but expect a $20 billion investment in Brazil. Assuming a correlation of 0.80 between the existing and proposed projects, compute the expected returns and the standard deviation from the combined operations. (2+3) B. As an alternative to Brazil, $20 billion can be invested in the Congo basin in a project that will provide a 35% return with a 40% standard deviation having a correlation of 0.6 with domestic operations. Again, compute the expected returns and the standard deviation from the combined operations. Should they invest in Brazil or Congo? WHY? (1+2+2)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started