Problem:	10.1
Consider the following probability distribution of returns estimated for a proposed project that involves a new ultrasound machine:
State of the Economy		Probability of Occurrence		Rate of Return
Very Poor		0.1		-10.00%
Poor		0.2		0.00%
Average		0.4		10.00%
Good		0.2		20.00%
Very Good		0.1		30.00%
a) What is the expected rate of return on the project?
E( R ) = [w1*E( R)] + [w2*E( R)] + [w3*E( R)] + [w4*E( R)] + [w5*E( R)]
E( R ) =	____%		10%
b) What is the project's standard deviation of returns?
Variance=	(Probability of return 1 * [Rate of Return 1 - Expected Rate of Return]^2)+
	(Probability of return 2 * [Rate of Return 2 - Expected Rate of Return]^2)+
	(Probability of return 3 * [Rate of Return 3 - Expected Rate of Return]^2)+
	(Probability of return 4 * [Rate of Return 4 - Expected Rate of Return]^2)+
	(Probability of return 5 * [Rate of Return 5 - Expected Rate of Return]^2)
Variance=
Standard Deviation=	Square Root of the Variance
Standard Deviation=		%
CV =	Standard deviation/expected rate or return
CV =
c) In what situation is this risk relevant?