Consider the following probability distribution of returns estimated for a proposed project that involves a new ultrasound machine:
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finance_project_question.docx5. Consider the following probability distribution of returns estimated for a proposed project that involves a new ultrasound machine:
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State of Economy Probability of Occurrence Rate of Return |
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Very Poor |
0.10 |
-10.0% |
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Poor |
0.20 0.0% |
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Average |
0.40 |
10.0% |
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Good |
0.20 20.0% |
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Very Good |
0.10 |
30.0% |
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1. What is the expected rate of return on the project?
2. What is the project’s standard deviation of returns?
3. What is the project’s coefficient of variation (CV) of returns?
4. What type of risk does the standard deviation and CV measure?
5. In what situation is the risk relevant?
