Question: Swift Manufacturing must choose between 2 asset purchases. The annual rate of return and the related probabilities are given in the table summarize the firm's analysis to this point.
| Project 257 |
|
Project 432 |
| Rate of return |
Probability |
|
Rate of return |
Probability |
| -10% |
0.01 |
|
10.0% |
0.05 |
| 10 |
0.04 |
|
15.0% |
0.1 |
| 20 |
0.05 |
|
20.0% |
0.1 |
| 30 |
0.1 |
|
35.0% |
0.15 |
| 40 |
0.15 |
|
30.0% |
0.2 |
| 45 |
0.3 |
|
35.0% |
0.15 |
| 50 |
0.15 |
|
40.0% |
0.1 |
| 60 |
0.1 |
|
45.0% |
0.1 |
| 70 |
0.05 |
|
50.0% |
0.05 |
| 80 |
0.04 |
|
|
|
| 100 |
0.01 |
|
|
|
a) For each project compute:
1. the range of possible rates of return
2. the expected value of return
3. the standard deviation of the returns
4. the coefficient of the variation of the returns
b) Construct a bar chart of each distribution of rates of return.
c) Which project would you consider less risky? why?