Financial Management

Incorporating Risk into Investments Decisions Probability=Prob. PERIOD #1 PERIOD #2 PERIOD #3 Prob. Cashflow Yr Prob Cashflow Yr Prob. Cashflow .10 $1,000 1 .20 $1,000 1 .30 $1,000 .20 $2,000 2 .30 N .40 $2,000 $2,000 $3,000 .30 3 .40 3 20 $3,000 $3,000 $4,000 .40 4 .10 $4,000 .10 $4,000 Assume the probability distribution of cash flows for future periods are independent a. Calculate the Expected value for each of the 3 projects b. Calculate the Standard Deviation (SD) of each project Calculate the Coefficient of Variation (CV) for each project CV=SD/Expected value C