Assignment Instructions:

Assume there is a 10% probability of the pipeline leaking, with an expected liability of $3.2 billion which will be deducted from total profit. There is a 90% probability the pipeline will not leak. Determine the expected return on this investment, as well as the variance.

The firm also has an alternative investment which will yield $1.6 billion over the course of the same 15-year period, with a probability of 80%, or $1.15 billion with a probability of 20%. Calculate the expected return, as well as the variance. The risk should be expressed as the standard deviation.

Here is the corresponding data table:

PRICE QUANTITY (in millions) TOTAL REVENUE MARGINAL REVENUE TOTAL COST (in millions) TOTAL FIXED COST [in millions) TOTAL VARIABLE COST (in million) AVERAGE TOTAL COST AVERAGE VARIABLE COST MARGINAL COST 89 0 $0.00 $0.00 $1.72 51.72 50.00 0 82.7 1 532.70 582.70 529.19 51.72 527.47 $29.19 $27.47 $27.47 76.4 2 5152.30 570.10 559.11 51.72 557.39 529.55 $23.59 $29.92 70.1 3 $210.30 $57.50 $39.75 51.72 588.04 $29.92 $29.35 $30.66 63.8 4 $255.20 $44.90 $121.15 $1.72 $119.43 $30.29 $29.86 $31.39 57.5 5 5237.50 532.30 $153.28 $1.72 $151.56 $30.66 $30.31 $32.12 51.2 6 5307.20 519.70 $186.13 5.1.72 $124.41 531.02 $30.74 $32.86 44.9 7 $314.30 $7.10 $219.72 5.1.72 $218.00 531.39 531.14 533.59 38.6 8 5308.80 555.50 5254.05 51.72 5252.33 531.76 531.54 534.33 32.3 9 $290.70 $13.10 $239.11 $1.72 5287.39 $32.12 $31.93 $35.06 26 10 $260.00 $30.70 $324.90 51.72 5323.13 $32.49 $32.32 $35.79