Assume that we can estimate a project's cash flows as follows: n 0 1 234 4 5 Expected Flow E(An) Estimate of Standard Deviation on $0 $10 -$300 $120 $150 $150 $110 $100 $15 $20 $25 $30 In this case, each annual flow can be represented by a random variable with known mean a variance. Further assume complete independence among the cash flows. (a) Find the expected NPW and the variance of this project at i = 10%. (b) If all cash flows are normally distributed with the given means and variances, what is th probability that the NPW will exceed $200?

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Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.