1. The president of the Martin Company is considering two alternative invest-ments, X and Y. If each investment is carried out, there are four possibleoutcomes. The present value of net profit and probability of each outcomefollow:Investment XInvestment YNet PresentNet PresentOutcomeValueProbability OutcomeValue$12 millionProbability0.1$20 million0.2A8 million10 million20.3B9 million0.330.46 million0.13 million0.1D11 million0.5a. What are the expected present value, standard deviation, and coefficientof variation of investment X?b. What are the expected present value, standard deviation, and coefficientof variation of investment Y?c. Which investment is riskier?d. The president of the Martin Company has the utility function

Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

ments, X and Y. If each investment is carried out, there are four pos outcomes. The present value of net profit and probability of each outc follow: Investment X Investment Y Net Present Net Present Outcome Value Probability Outcome Probabilit Value S12 million $20 million 0.1 0.2 0.3 A 2 8 million B 9 million 6 million 0.3 3 10 million 0.4 0.1 4 3 million 0.1 D I1 million 0.5 What are the expected present value, standard deviation, and coeffi of variation of investment X? What are the expected present value, standard deviation, and coeffi

ments, X and Y. If each investment is carried out, there are four pos outcomes. The present value of net profit and probability of each outc follow: Investment X Investment Y Net Present Net Present Outcome Value Probability Outcome Probabilit Value S12 million $20 million 0.1 0.2 0.3 A 2 8 million B 9 million 6 million 0.3 3 10 million 0.4 0.1 4 3 million 0.1 D I1 million 0.5 What are the expected present value, standard deviation, and coeffi of variation of investment X? What are the expected present value, standard deviation, and coeffi

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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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

1. The president of the Martin Company is considering two alternative invest-
ments, X and Y. If each investment is carried out, there are four possible
outcomes. The present value of net profit and probability of each outcome
follow:
Investment X
Investment Y
Net Present
Net Present
Outcome
Value
Probability Outcome
Value
$12 million
Probability
0.1
$20 million
0.2
A
8 million
10 million
2
0.3
B
9 million
0.3
3
0.4
6 million
0.1
3 million
0.1
D
11 million
0.5
a. What are the expected present value, standard deviation, and coefficient
of variation of investment X?
b. What are the expected present value, standard deviation, and coefficient
of variation of investment Y?
c. Which investment is riskier?
d. The president of the Martin Company has the utility function

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