Question 3 Question 3a Question 36 ------------- Market State Bull Recovery Downturn Bear Prob. 45% 21% 17% 17% Market Return 18.01% 9.93% -1.28% -5.87% Cash Flow 219,115 126,195 2,720 55,505 ----------- A colleague has asked you to assist with conducting a simple 1 year valuation of a project applying the certainty equivalent method. You have been provided data on possible market and cash flow movements as well as thier associated probabilities. Assuming a risk free of 6%, the expected return and variance of the market is closest to: Risk-free rate Initial Cost ------------------ 6% 95,277.09 Options A: 9.06%;0.92% C: 2.27%; 0.17% B: 5.20% ; 1.17% D: 0.23%; 0.00%