Risk analysisGreenEnergy is considering expanding its investment in renewable energy generation. Two possibletypes, wind andsolar, of energy generation are under review. After investigating the possibleoutcomes, the company made the estimates shown in the followingtable:

WindFarm SolarFarm

Amount Amount

Initial investment $104 million $104 million

Annual rate of return

Pessimistic 2% 8%

Most likely 23% 23%

Optimistic 37% 47%.

The pessimistic and optimistic outcomes occur with a probablity of25%, and the most likely outcome occurs with a probability of50%.

a.Determine the range of the rates of return for each of the two projects.

b.Which project is lessrisky?

c.If you were making the investmentdecision, which one would youchoose? What does this imply about your feelings towardrisk?

d.Assume that solarfarm's most likely outcome is 24% per year and that all other facts remain the same. Does this change your answer to part c?

Q:

1.The range for the rate of return for windfarm is ....??? %. (Round to the nearest wholenumber.)

The range for the rate of return for solarfarm is ....??%. (Round to the nearest wholenumber.)

2.Which project is lessrisky?(Select from thedrop-down menus.)

(Wind Farm or expansion B?) is less risky because it has a (larger or small?) range for the rate of return.

3.If you were making the investmentdecision, which one would youchoose? What does this imply about your feelings towardrisk? (Select the best answerbelow.)

A.Since the most likely return for both projects is thesame, you can choose either project regardless of your risk preference.

B.Choose windfarm because it is less risky and thus a better investment.

C.Choose solarfarm because it has a higher optimistic rate of return regardless of its risk.

D.Since the average return for both projects is the same and the initial investments areequal, the answer depends on your risk preference. Since the returns on solarfarm are morevolatile, so arisk-averse investor would prefer windfarm.

4.Assume that expansionB's most likely outcome is 24% per year and that all other facts remain the same. Does this change your answer to part c?(Select the best answerbelow.)

A.Yes.

B.No.

C.Not enough information to answer.