1. A company has to choose between three projects: Project A has a 30% chance of producing a return of £25000, a 45% chance of producing a return of £7000 and a 25% chance of producing a return of £6000. Project B has a 50% chance of a £16000 return, 30% chance of an £14000 return and a 20% chance of a zero return. Project C has a 35% chance of a £35000 return, a 40% chance of a £12000 return and a 25% chance of making a loss of £8000. a) Calculate the expected value and the variance of each project. b) Hence decide which option the company should choose and why?
1. A company has to choose between three projects: Project A has a 30% chance of producing a return of £25000, a 45% chance of producing a return of £7000 and a 25% chance of producing a return of £6000. Project B has a 50% chance of a £16000 return, 30% chance of an £14000 return and a 20% chance of a zero return. Project C has a 35% chance of a £35000 return, a 40% chance of a £12000 return and a 25% chance of making a loss of £8000. a) Calculate the expected value and the variance of each project. b) Hence decide which option the company should choose and why?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:1. A company has to choose between three projects:
Project A has a 30% chance of producing a return of £25000, a 45% chance of
producing a return of £7000 and a 25% chance of producing a return of £6000.
Project B has a 50% chance of a £16000 return, 30% chance of an £14000 return
and a 20% chance of a zero return. Project C has a 35% chance of a £35000
return, a 40% chance of a £12000 return and a 25% chance of making a loss of
£8000.
a) Calculate the expected value and the variance of each project.
b) Hence decide which option the company should choose and why?
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