(a)
The joint probability distribution for savings and useful life.
Answer to Problem 16P
The following table shows the joint probability.
Savings per year | Useful life |
Joint Probability |
Explanation of Solution
Calculation:
Calculate the joint probability.
Savings per year |
Probability |
Useful life |
Probability |
Joint Probability |
|
Optimistic | |||||
Most likely | |||||
Pessimistic | |||||
Total |
Conclusion:
The joint probability is shown in table.
(b)
The
Answer to Problem 16P
Rate of return for optimistic scenario is
Rate of return for most likely scenario is
Rate of return for pessimistic scenario is
Explanation of Solution
Calculation:
Write the formula to calculate the rate of return.
Here, the rate of interest is i and the time period is n.
Calculate the rate of return for optimistic scenario.
Substitute
Calculate the rate of return for most likely scenario.
Substitute
Calculate the rate of return for pessimistic scenario.
Substitute
Conclusion:
Thus, the rate of return for optimistic scenario is
Rate of return for most likely scenario is
Rate of return for pessimistic scenario is
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