Megafund financing methods for funding early-stage translational research often require billions of dollars in capital to diversify idiosyncratic scientific and clinical risk enough to attract private- sector capital. In this problem set we apply this financing method to orphan drug development, where development costs, failure rates, and correlations are low, and therefore the amount of capital required to de-risk these portfolios is much lower. Consider a portfolio of 8 preclinical orphan drug compounds each initially acquired and developed using US$25 million of capital. Assume this capital is used to first purchase and then develop the compounds, with excess capital not currently deployed earning a 0% return in cash. For simplicity, also assume that compounds are sold once they (successfully) complete the preclinical phase. We will perform a statistical analysis to estimate the expected return of this investment over the initial preclinical research phase. Problem 3 0.0/1.0 point (graded) At the end of the preclinical research phase, what is the expected value and standard deviation of the return on the US$25 million of capital invested in a single preclinical orphan drug compound. Assume that capital held in cash earns no interest. (Note: Your answer should be a number in percentage form. Do not enter '%'.) E[R] = % SD (R) = % Megafund financing methods for funding early-stage translational research often require billions of dollars in capital to diversify idiosyncratic scientific and clinical risk enough to attract private- sector capital. In this problem set we apply this financing method to orphan drug development, where development costs, failure rates, and correlations are low, and therefore the amount of capital required to de-risk these portfolios is much lower. Consider a portfolio of 8 preclinical orphan drug compounds each initially acquired and developed using US$25 million of capital. Assume this capital is used to first purchase and then develop the compounds, with excess capital not currently deployed earning a 0% return in cash. For simplicity, also assume that compounds are sold once they (successfully) complete the preclinical phase. We will perform a statistical analysis to estimate the expected return of this investment over the initial preclinical research phase. Problem 3 0.0/1.0 point (graded) At the end of the preclinical research phase, what is the expected value and standard deviation of the return on the US$25 million of capital invested in a single preclinical orphan drug compound. Assume that capital held in cash earns no interest. (Note: Your answer should be a number in percentage form. Do not enter '%'.) E[R] = % SD (R) = %