The probability distribution of possible net present values for project X has an expected value of $20,000 and a standard deviation of $10,000. Assuming a normal distribution, calculate the probability that the net present value will be (i)zero or less, that (ii) it will be greater than $30,000, and that it will be less than $5,000.

The probability distribution of possible net present values for project X has an expected value of $20,000 and a standard deviation of $10,000. Assuming a normal distribution, calculate the probability that the net present value will be (i)zero or less, that (ii) it will be greater than $30,000, and that it will be less than $5,000.

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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Suppose that we make contributions to a fund of $125 today and $750 in twoyears for a return of $1000 in one year. First write the Net Present Value as a function of the discount factor ν. Secondly, use the NPV to calculate the yield rate of this investment (select the larger value for i. Finally, explain whether or not this is a good investment for us. Please show all work
Consider an economy with three states which occur with probability (0.2, 0.2, 0.6). Suppose a firm has a project which generates the state dependent cash flows (100, 240, 220) at t=1. The investment costs are 170 at t=0. The firm has 170 at t=0. The market portfolio generates the payoff (200, 230, 260) and has an expected return of 10%. The risk free rate is 2%. Suppose the CAPM holds. (a) What is the beta of this project? (b) What is the net present value of the project? Explain whether the firm should conduct the project.
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