1. Suppose we have a project with the following cash flows and required return. What is the NPV and IRR of the project? t 0 $ Cash flow (250,000) 1 234567 Return: NPV: IRR: 41,000 48,000 63,000 79,000 88,000 64,000 41,000 12% 2. Given the information of Stock A, please figure out the expected return, variance, and standard deviation of the stock. (6) (5) Squared (1) State of (2) (3) (4) Probability of Return if State Product Return Deviation from Expected Return Return Deviation from Expected (7) Product Economy State Occurs (2) × (3) (3) - E(R) Return (2) x (6) Boom 0.2 0.24 Normal 0.5 0.11 Recovery 0.2 0.02 Recession 0.1 -0.013 Expected return= Variance = The standard deviation is the square root of the variance, so the standard deviation is: Standard deviation:
1. Suppose we have a project with the following cash flows and required return. What is the NPV and IRR of the project? t 0 $ Cash flow (250,000) 1 234567 Return: NPV: IRR: 41,000 48,000 63,000 79,000 88,000 64,000 41,000 12% 2. Given the information of Stock A, please figure out the expected return, variance, and standard deviation of the stock. (6) (5) Squared (1) State of (2) (3) (4) Probability of Return if State Product Return Deviation from Expected Return Return Deviation from Expected (7) Product Economy State Occurs (2) × (3) (3) - E(R) Return (2) x (6) Boom 0.2 0.24 Normal 0.5 0.11 Recovery 0.2 0.02 Recession 0.1 -0.013 Expected return= Variance = The standard deviation is the square root of the variance, so the standard deviation is: Standard deviation:
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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Transcribed Image Text:1. Suppose we have a project with the following cash flows and required return. What is the NPV and IRR of the project?
t
0
$
Cash flow
(250,000)
1
234567
Return:
NPV:
IRR:
41,000
48,000
63,000
79,000
88,000
64,000
41,000
12%
2. Given the information of Stock A, please figure out the expected return, variance, and standard deviation of the
stock.
(6)
(5)
Squared
(1)
State of
(2)
(3)
(4)
Probability of Return if State
Product
Return
Deviation
from Expected
Return
Return
Deviation
from
Expected
(7)
Product
Economy
State
Occurs
(2) × (3)
(3) - E(R)
Return
(2) x (6)
Boom
0.2
0.24
Normal
0.5
0.11
Recovery
0.2
0.02
Recession
0.1
-0.013
Expected return=
Variance =
The standard deviation is the square root of the variance, so the standard deviation is:
Standard deviation:
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