Suppose that a market index fund (e.g. the Tracker Fund of Hong Kong) is currently priced at $24.0 per share. According to the analysts, at six months from now, its price per share can go up to $26.0 in an up-market, or can go down to $22.0 in a down-market, depending upon the overall economic climate. The risk-free interest rate is 3% per six months. That is, if you put $1000 in a risk-free government bond, you are guaranteed to receive $1030 at six months from now. A division within a company is involved in developing new products (there may be 10 or more new product development projects going on at the same time). One of these projects is entitled Project X, of which you are the project manager. The new product of Project X is scheduled to be deliverable at six months from now. You estimate that if the economic climate is favourable (i.e. in an up-market), the value of this new product will be worth $450,000 (if the development process turns out to be a complete success), or worth $210,000 (if the development process turns out to be a partial success). Otherwise, if the economic climate is unfavourable (i.e. in a down-market), the value of this new product will be worth $150,000 (if the development process turns out to be a complete success), or worth $50,000 (if the development process turns out to be a partial success). Your engineering team estimates that there is a 60% chance that the development process of Project X will be a complete success, and a 40% chance that it will only be a partial success. To carry out Project X, the company needs to invest $120,000 now. Based on the information given above, compute the net present value of Project X. Suppose that a market index fund (e.g. the Tracker Fund of Hong Kong) is currently priced at $24.0 per share. According to the analysts, at six months from now, its price per share can go up to $26.0 in an up-market, or can go down to $22.0 in a down-market, depending upon the overall economic climate. The risk-free interest rate is 3% per six months. That is, if you put $1000 in a risk-free government bond, you are guaranteed to receive $1030 at six months from now. A division within a company is involved in developing new products (there may be 10 or more new product development projects going on at the same time). One of these projects is entitled Project X, of which you are the project manager. The new product of Project X is scheduled to be deliverable at six months from now. You estimate that if the economic climate is favourable (i.e. in an up-market), the value of this new product will be worth $450,000 (if the development process turns out to be a complete success), or worth $210,000 (if the development process turns out to be a partial success). Otherwise, if the economic climate is unfavourable (i.e. in a down-market), the value of this new product will be worth $150,000 (if the development process turns out to be a complete success), or worth $50,000 (if the development process turns out to be a partial success). Your engineering team estimates that there is a 60% chance that the development process of Project X will be a complete success, and a 40% chance that it will only be a partial success. To carry out Project X, the company needs to invest $120,000 now. Based on the information given above, compute the net present value of Project X
