Discuss the below:
Q. (Expected return and risk) Procter & Gamble is considering three possible capital investment projects. The projected returns depend on the future state of the economy as given here.
|
State of the
|
Probability of
|
|
Projected Return
|
|
Economy
|
Occurance
|
|
1
|
2
|
3
|
|
|
|
|
|
|
|
Recession
|
0.1
|
|
9%
|
3%
|
15%
|
|
Stable
|
0.7
|
|
13%
|
10%
|
11%
|
|
Boom
|
0.2
|
|
17%
|
22%
|
5%
|
a. Calculate each project's expected return, variance, and standard deviation.
b. Rank the projects on the basis of (1) expected return and (2) risk. Which project would you choose?